The Senior Deputy Governor of the Bank of Korea, Ryu Sang-dun, stated on Tuesday that the introduction of a Korean won stablecoin should adopt a gradual approach of "first banks, then non-bank institutions" to ensure financial stability.

Written by: Fang Jiayao, Wall Street Journal

On Tuesday, Ryu Sang-dun emphasized at a press conference that the introduction of a stablecoin pegged to the Korean won should be gradual, starting with the issuance of the won stablecoin by the most strictly regulated commercial banks, and then gradually allowing non-bank institutions to participate once they have gained experience. This statement marks an important step for South Korea in building a regulatory framework for digital currencies.

Starting with Bank Pilots

Ryu Sang-dun highlighted that the introduction of stablecoins could have significant impacts on monetary policy and the payment settlement system, thus it is essential to establish a comprehensive safety mechanism to prevent fluctuations in the financial market and protect user rights.

He also echoed concerns previously raised by Bank of Korea Governor Lee Chang-yong regarding capital flows and financial stability. Last Wednesday, Governor Lee warned that while he does not oppose the issuance of a won stablecoin, he is concerned that it may backfire—potentially increasing reliance on dollar-pegged stablecoins rather than reducing it, complicating foreign exchange controls, and threatening the effectiveness of monetary policy.

Currently, the government led by President Lee Jae-myung is accelerating the legislative process to fulfill its campaign promise of allowing companies to issue won stablecoins. The ruling Democratic Party has proposed a draft aimed at establishing a sound regulatory foundation to ensure that South Korea does not fall behind other countries in the field of digital currencies.

Stablecoins are cryptocurrencies designed to maintain a stable value, typically pegged 1:1 to the US dollar. Cryptocurrency traders use them for transfers between different currencies, and they are now gradually being adopted by businesses.

In addition to the stablecoin issue, Ryu Sang-dun also mentioned that rising housing prices and increasing household debt are becoming focal points for the central bank. In the context of declining inflation, the Bank of Korea has shifted to an accommodative policy, with last month's interest rate cut bringing the policy rate down to the midpoint of the neutral range.

He further revealed that the Bank of Korea plans to consult with major commercial banks to prepare for the second round of pilot testing for central bank digital currency. The first round of pilot testing will conclude next week, and this project is a joint initiative with the Bank for International Settlements, which began at the end of 2023.

Meanwhile, considering the trend towards digitalization, South Korea is also advancing reforms to internationalize its local currency market, further opening it up to foreign investors. Over the past year, regulators have extended market trading hours and relaxed entry conditions for foreign investors.

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