A stablecoin is a type of cryptocurrency that minimizes price volatility by pegging its value to a specific asset, most commonly the U.S. dollar. To maintain this value, stablecoins are backed by collateral, with U.S. Treasury bonds frequently used for this purpose. (Image courtesy of Yonhap)
SEOUL, Aug. 21 (Korea Bizwire) — The Bank of Korea (BOK) on Wednesday sounded the alarm over the rapid spread of dollar-pegged stablecoins, warning lawmakers that the trend poses risks to monetary sovereignty and financial stability.
In a written response submitted to Rep. Park Sung-hoon of the People Power Party, the central bank urged swift revisions to the Foreign Exchange Transactions Act and related laws.
“Dollar stablecoins are already circulating domestically, raising concerns of foreign exchange regulation evasion,” the BOK said, adding that unchecked growth could weaken the effectiveness of monetary policy and fuel capital outflows.
The warning comes as Jeremy Allaire, CEO of Circle — the issuer of USDC, one of the largest dollar stablecoins — prepares for meetings with Korean commercial banks.
The BOK dismissed the notion that introducing a won-based stablecoin could offset these risks, arguing that demand is fundamentally driven by trust in the underlying fiat currency. “The ability of a won stablecoin to absorb dollar stablecoin demand is limited,” it said, stressing the urgency of regulatory oversight.
Citing potential volatility, the BOK noted that issuance volumes could exceed the nearly 4 trillion won ($2.9 billion) balance of prepaid electronic payments as of late 2024, raising the risk of systemic disruption in the event of mass sell-offs.
The Bank of Korea’s headquarters in central Seoul (Image courtesy of Yonhap)
The central bank insisted that issuance must remain bank-centered, though it acknowledged that non-bank firms could contribute through technology and product development.
To tighten oversight, the BOK proposed establishing a statutory policy council with the Finance Ministry and the Financial Services Commission to set rules on licensing, issuance limits, and reserve asset composition.
It further suggested that large-scale issuance be subject to direct approval from its Monetary Policy Board, warning that expanded issuance could inflate the broader money supply.
The bank also recommended raising capital requirements for stablecoin issuers far above current legislative proposals — potentially to 25 billion won ($18 million) or more — drawing comparisons with regulations on internet-only banks.
The Bank of Korea (BOK) on Wednesday sounded the alarm over the rapid spread of dollar-pegged stablecoins. (Image courtesy of Yonhap)
At the same time, the BOK reaffirmed its commitment to developing central bank digital currency (CBDC)-based “deposit tokens” through its Project Hangang pilot. It said banks should continue testing commercialization, with CBDCs coexisting and competing with private stablecoins.
“The U.S. government’s influence through dollar stablecoins cannot be underestimated,” a senior BOK official noted, emphasizing that stronger rules are needed to safeguard Korea’s monetary sovereignty in the digital era.
M. H. Lee (mhlee@koreabizwire.com)
