S. Korea pushes stablecoin legalization amid central bank concerns

South Korea is seeking to reshape its regulatory landscape for digital assets while its central bank remains cautious.

Our correspondent Moon Ji-young explains.

As stablecoins, particularly those backed by the U.S. dollar, are set to rapidly expand globally, major nations are stepping up efforts to institutionalize and regulate these digital assets, including South Korea.

To this end, ruling party lawmakers and the Korea Capital Market Institute hosted a key policy forum on Wednesday to discuss integrating stablecoins into the nation's institutional framework.

"We are working on the stablecoin bill by establishing a dedicated task force. Through extensive discussions, significant progress has been made in solidifying the direction of the legislation. We anticipate that the bill will be formally introduced sometime next week."

The institutionalization of stablecoins is being pursued as part of President Lee Jae Myung's broader plan to establish South Korea as a digital asset hub.

The stablecoin bill is expected to advance based on an "authorization system," proposing to raise the minimum capital requirement for stablecoin issuers to at least 5 billion Korean won, or 3-point-7 million US dollars, which is higher than the previous proposal, and to enforce a perpetual 1:1 reserve requirement.

Meanwhile, the Bank of Korea has raised concerns over potential side effects.

"If won-pegged stablecoins are introduced, there could be an issue where their supply creates its own demand. From a broad monetary perspective, if stablecoins are issued, the central bank might not intervene when conducting monetary policy, potentially influencing inflation."

While the Financial Services Commission underscored the necessity of establishing legal protection for domestic users of foreign-issued stablecoins, the Finance Ministry emphasized the critical importance of defining their legal classification, citing concerns over their potential misuse for illicit foreign exchange dealings or the embezzlement of export proceeds.

"Though legislative approaches varied, all participants underscored that a robust legal framework for stablecoins must be established, taking into comprehensive consideration Korean Won sovereignty, financial innovation, and stability.

Moon Ji-young, Arirang News.