[Econ & Biz] Stablecoins in focus: S. Korea's legal framework and global trends

Today, as U.S. dollar-based stablecoins rapidly gain traction worldwide, major nations are actively pursuing institutionalization and regulations, based on both their own domestic currencies and foreign currencies.

South Korea is no exception.

For more, we have our economics correspondent, Moon Ji-young, in the studio.

It's good to have you, Ji-young.

Ji-young. What exactly is a stablecoin, and what makes them "stable"?

Stablecoins are a class of digital assets designed to maintain a stable value.

This stability is typically achieved by pegging their price to a fiat currency, such as the U.S. dollar, or to other specific assets.

This mechanism crucially differentiates them from highly volatile cryptocurrencies like Bitcoin, thereby providing a consistent store of value within the digital realm.

Their inherent price stability makes stablecoins highly suitable for a broad spectrum of digital economic activities.

They facilitate efficient payments, seamless remittance, and rapid cross-border transactions by circumventing traditional financial complexities and fees.

Notably, in regions experiencing fiat currency instability.such as parts of Africa, Latin America, and Southeast Asia.stablecoins are already widely used in the real economy.

Their utility further extends across various digital finance sectors, including cryptocurrency exchanges and decentralized finance.

If well-designed and appropriately regulated, stablecoins could offer a faster, more efficient, and more inclusive payment option relative to existing payment systems.

However, due to their potential financial risks, there's a lot of attention and discussion on the need to legalize and regulate them.

2. Alright, let's turn our attention to the global stage. What are the latest movements in stablecoin regulation and adoption worldwide?

The global push to regulate stablecoins is intensifying, with major economic powers like the U.S., Japan, and the EU leading the charge.

This isn't merely about digital asset oversight.

It's more about reinforcing national financial sovereignty and managing the shifting tides of global economic influence.

The U.S. made a significant move on July 18th by enacting the GENIUS Act, which aims to provide a clear regulatory framework.

The Act specifies entry requirements for stablecoin issuers and clarifies conduct regulations for user protection, intending to foster innovation in domestic payments while promoting the global expansion of dollar-backed stablecoins.

A key provision of the Act also focuses on capital and liquidity requirements, ensuring that stablecoins are fully backed by secure, liquid assets.

Crucially, the U.S. is tightening regulations on foreign payment stablecoin issuers.

This move signals a potential market exit for stablecoins like USDT, which currently do not comply with U.S. regulatory standards, effectively warning non-compliant entities.

Meanwhile, Japan and the European Union are implementing robust regulations specifically targeting foreign-issued stablecoins to safeguard their respective monetary sovereignties.

Through its 2023 Payment Services Act amendment, Japan introduced the "EPIESP" system, permitting foreign-issued stablecoins to circulate only if the handling entity accepts liability for potential losses.

The EU's comprehensive MiCA regulation mandates that only EU-approved issuers can distribute foreign currency-based stablecoins within the bloc.

While their approaches vary, a clear set of common objectives underpins these diverse regulatory efforts, including financial stability, consumer and investor protection, and preservation of monetary sovereignty.

3. With such significant developments abroad, how is South Korea currently approaching the institutionalization of stablecoins, and what progress has been made?

South Korea is actively pursuing the legalization of domestically won-pegged stablecoins.

In fact, ruling party lawmakers and the Korea Capital Market Institute held a key policy forum yesterday to discuss integrating stablecoins into the nation's legal framework.

Let's take a listen to what a lawmaker had to say.

"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 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 U.S. dollars, which is higher than the previous proposal.

It also aims to enforce a perpetual 1-to-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 money laundering.

Though legislative approaches varied in South Korea, there is a clear consensus on the need for a robust legal framework that balances Korean won sovereignty, financial innovation, and stability.

Alright, Ji-young. Thanks for your insights today.