South Korea Weighs Bank-Led Won Stablecoins Amid Risk Debate
- South Korea considers bank-led won stablecoins as regulators weigh capital flow risks.
- Governor Lee warns stablecoins may bypass controls through volatile USD-linked tokens.
- Central bank favors tokenized deposits and wholesale CBDCs over digital currency rollout.
South Korea is weighing whether to allow domestic institutions to issue virtual asset stablecoins as regulatory debate intensifies. The discussion took center stage at the Asian Financial Forum in Hong Kong on January 26.
Bank of Korea Governor Lee Chang-yong outlined the central bank’s cautious position during a public session. He said authorities now face growing market pressure to modernize the country’s digital asset framework.
As a result, regulators already allow South Korean residents to invest in virtual assets issued overseas. At the same time, financial authorities are studying a registration system for domestic virtual asset issuance.
The proposal includes potential approval for Korean institutions to issue won-denominated stablecoins. However, Lee stressed that the issue remains controversial within policy circles. He warned that stablecoins raise risks linked to capital flows and financial supervision.
Cross-Border Use Raises Capital Flow Concerns
Lee said the most likely use case for a Korean won stablecoin involves cross-border transactions. In contrast, he expects tokenized bank deposits to serve domestic payment needs. South Korea already operates a fast and efficient payment infrastructure. That reality reduces the immediate benefit of retail central bank digital currencies.
Lee explained that capital flow management still plays a central role in Korea’s financial policy. He warned that won stablecoins could weaken those controls if poorly designed. The risk increases when stablecoins interact with widely available U.S. dollar stablecoins.
Lee said exchange rate movements could quickly drive funds into dollar-pegged tokens. Such shifts could trigger large and rapid capital transfers. He added that transaction costs for USD stablecoins remain far lower than traditional dollar settlements.
That cost advantage makes sudden capital movement more likely during market volatility. Lee said regulators must account for these risks before approving any issuance framework. He also highlighted oversight challenges tied to stablecoin issuers. Many major USD stablecoins operate outside the banking sector. That structure complicates supervision, compliance, and enforcement efforts.
Related: Seized Bitcoin Vanishes as South Korea Expands Crypto Control
Bank-Led Model Under Review
During the forum, Lee emphasized the need for a conservative rollout strategy. He said authorities prefer a bank-led model for any won stablecoin issuance. According to him, bank involvement ensures stronger KYC and AML enforcement.
He noted that stablecoin usage in parts of Asia often aims to obscure identities. Without banks, he said regulators may struggle to enforce compliance standards. “So we want to take a more conservative approach,” Lee told forum attendees. He said officials want to allow won stablecoins but start with bank-based institutions.
However, Lee acknowledged resistance from the market. He said industry participants argue non-bank issuers should also participate. That disagreement remains unresolved within the regulatory process.
Meanwhile, the central bank continues advancing digital currency pilots. These include tokenized deposits and wholesale central bank digital currencies. Lee said these efforts aim to preserve South Korea’s two-tier financial system.
Wholesale CBDCs support interbank settlement without disrupting retail banking. Tokenized deposits allow innovation while keeping funds within regulated banks. Lee said these tools address many use cases linked to stablecoins. They also limit risks tied to retail capital flight.
South Korea’s regulators have not announced a timeline for final decisions. The registration framework remains under study by financial authorities. Lee said officials will continue assessing market demand and systemic risks. He added that any approval would prioritize stability over speed.
For now, the won stablecoin debate remains open. Regulators continue to weigh market demand against capital flow risks. Any future issuance will likely come with strict oversight and limited scope.
