BOK rushes to put brakes on won-based stablecoin drive

The headquarters of Bank of Korea (BOK) in Seoul / Courtesy of BOK

Bank of Korea (BOK) is rushing to underscore financial stability risks associated with private sector-led won-based stablecoins, alarmed by growing market expectations over the early, full adoption of the long-stalled, controversial initiative, market watchers said Tuesday.

Underpinning the BOK pushback is growing calls for significant lowering of entry barriers for coin issuers to fortify the Korean currency’s competitive edge, amid global popularity of U.S. dollar-based stablecoins.

The implementation of private sector-led won-based stablecoins was one of the major campaign pledges from President Lee Jae-myung, a drive that gained further traction after the recent addition of Kim Yong-beom as the top presidential economic policy adviser.

Kim, who was formerly CEO of Hashed Open Research, a private blockchain, Web3 and crypto think tank, is a vocal advocate for the prompt institutionalization of private won-based stablecoins. He also previously served as vice finance minister and vice chairman of the Financial Services Commission.

He said in a report published two weeks ago that not only commercial lenders but private financial entities and fintechs should also be able to issue won-based stablecoins.

On Monday and Tuesday, many domestic tech, payment and settlement firms’ shares spiked, on expectations of a prompt realization of Lee’s campaign pledge.

BOK Gov. Rhee Chang-yong remains adamant that the central bank should have a decisive say in policy development as a prerequisite for issuance of the digital assets.

This is because the means of payment essentially functions as a substitute for fiat currency, wildly undermining the efficacy of monetary policy.

Bank of Korea (BOK) Gov. Rhee Chang-yong, left, and Christopher J. Waller, member of the board of governors of the U.S. Federal Reserve, speaks during a policy dialogue at the BOK headquarters in Seoul, June 2. Yonhap

According to the central bank, a conference on the impact of stablecoins on Korea will be held early next month.

Leading academic figures will have a panel discussion, moderated jointly by BOK’s rate-setting Monetary Policy Board member Lee Soo-hyung and former member Park Ki-young.

The central bank maintains that the growth of global demand for stablecoins is understandable.

However, the issue requires a thoughtful consideration for financial stability — one of two BOK mandates alongside price stability.

“Haphazard implementation of stablecoin policies could wildly destabilize the financial system,” a BOK official said.

Equally concerning is the risk of coin runs where a large number of customers seek redemption at the same time, alarmed by a sharp drop in stablecoin value. In this case, coin issuers would have to cash large deposits or sell off government bonds to meet liquidation demands.

“In this scenario, the country's financial system will experience a major stress event," the official said.

Still, the implementation will need months of deliberation to revise relevant laws governing virtual assets, electronic financial transactions, capital markets, foreign exchange and the use of financial information.