Gov't, ruling party at odds over won-denominated stablecoin issuance

From left, Financial Services Commission Vice Chairman Kwon Dae-young, Bank of Korea Governor Rhee Chang-yong, Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol and Financial Supervisory Service Governor Lee Chan-jin attend a policy coordination meeting at Government Complex Seoul, Thurday. Yonhap

Korea’s plan to legalize a bank-led won-denominated stablecoin is running into political resistance, intensifying the long-standing friction between financial regulators, the central bank and the ruling Democratic Party of Korea (DPK) over how and whether to open the market to non-bank players in the country’s first comprehensive digital asset law, market watchers said Thursday.

Central to the issue is capital liberalization, where rich people use cash to buy won-denomiated stablecoins and bypass the country’s bank-mediated capital regulations and taxes by diverting their assets overseas. Currently, cash remittances of up to $100,000 are allowed per year without reporting to banks.

The Bank of Korea (BOK) has long maintained that across-the-board stablecoin issuance by non-bank issuers would lead to a significant outflow of funds from Korea, undermining the principle of retaining national wealth within the country, a source of rapid economic growth over the past few decades.

The Financial Services Commission (FSC), the nation’s financial regulator, together with the ruling party has long dismissed the central bank’s claim over the past year, seeking to allow fintechs and blockchain firms to issue the coins, thus fostering competition and innovation.

However, the FSC is now siding with the BOK’s demand that stablecoin issuance be limited to a bank-led consortia, in which banks hold majority shares.

Tech firms could join and could become the largest single shareholder, but banks would retain an overall controlling stake in the early phase.

The FSC’s shift has left DPK lawmakers up in arms, with many expected to form a task force to outline their own version of the digital asset bill.

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

According to financial industry officials, the FSC recently submitted a revised proposal to the National Assembly that would allow won-based stablecoins to be issued first by consortia in which banks hold a majority stake of at least 50 percent plus one share.

In the proposal, the FSC said that issuer licensing requirements, including shareholder structure, would be defined by presidential decree, but left room for further negotiation before implementation.

The bill also proposes tougher accountability standards for crypto exchanges, including financial sector-level IT stability requirements.

This includes strict liability for hacking-related losses regardless of who was at fault, and punitive fines of up to 10 percent of annual revenue.

Stablecoin issuers would be required to maintain minimum paid-in capital of at least 5 billion won ($3.7 million), a level regulators say balances financial soundness with the need to avoid stifling innovation.

Authorities indicated that the threshold could be raised later as the market matures.

“The issue is likely to stir debate during policy discussions in the months to come,” an industry watcher said.

Meanwhile, granting outright authority to non-bank stablecoin issuers could accelerate personal overseas remittances sent by individuals for transfer purposes, an alleged method of gift tax evasion currently on the rise.

According to BOK data, overseas remittances for those purposes from 2022 through August 2024 reached $12.27 billion.

On paper, the transfers are used for education costs and family support, but suspicions linger that they are actually enabling overseas property purchases or other investments.

The United States was the top destination for overseas remittances, followed by Canada, Australia and Japan.