The Governor of the Bank of Korea warns: The issuance of won stablecoins by non-bank institutions may lead to chaos in monetary policy.

The Governor of the Bank of Korea (BOK), Lee Chang-yong, warned about stablecoins issued by non-bank entities linked to the Korean won (KRW), stating that such digital assets may disrupt the implementation of monetary policy and impact the forex regulatory framework.

Core Concern: Non-bank stablecoins may repeat the mistakes of the "Free Banking Era"

At the press conference held on Thursday, Governor Lee Chang-yong expressed deep concern about the potential issuance of KRW stablecoins by non-bank institutions.

According to the Korea Herald, President Lee clearly stated: "If multiple non-bank institutions issue KRW stablecoins, it may lead to a chaotic situation similar to that caused by private currency issuance in the 19th century." This likely refers to the "Free Banking Era" in the U.S. from 1837 to 1864.

He further elaborated on the risks: "In this situation, the monetary policy will be difficult to implement effectively, and there may be a negative process that forces a return to the Central Bank system."

Deep Conflicts: The Dual Challenges of Forex Liberalization and Banking Profit Structure

President Li explained that if the issuance of KRW stablecoins is allowed without restrictions, it may conflict with South Korea's forex liberalization policy. Additionally, allowing non-bank entities to handle payment and settlement services may also significantly alter the profitability structure of banks.

However, he emphasized that this matter cannot be decided solely by the Central Bank of Korea, and needs to be discussed with the relevant authorities. "Once the relevant ministers are appointed, we will jointly discuss and determine the direction," he revealed.

Policy Background: Acceleration of Stablecoin Legislation, Financial Sector Prepares Dual-Track Plan

President Li's remarks come at a time when the development of stablecoins in South Korea is gaining momentum. Recently, Democratic Party of Korea (DPK) member Min Byeong-deok proposed a comprehensive legislative proposal for the "Fundamental Law on Digital Assets," aimed at establishing a more structured regulatory framework for the country's crypto assets, which includes a stablecoin issuance licensing system and clear rules.

The proposed law is expected to complement the Virtual Asset Investor Protection Act and may allow non-bank entities to participate in stablecoin issuance.

A bank official recently revealed to local media that financial institutions are preparing for two legalization scenarios as it is currently unclear whether non-bank entities will be allowed to become stablecoin issuers.

• Option 1: Bank Joint Coin Issuance - The banking industry is considering a business model where banks establish joint ventures to jointly issue stablecoins.
• Option 2: Bank-Enterprise Cooperation - At the same time, banks are also engaging with various non-bank companies to prepare for the legalization and issuance of stablecoins.

At the same time, another bank official confirmed that the bank is in discussions with the South Korean Central Bank, other banks, "payment" companies, cryptocurrency exchanges, and blockchain companies regarding stablecoin matters, in preparation for the upcoming issuance.

South Korea's Central Bank Shifts: CBDC Project Paused, Observing Stablecoin Development

As the domestic atmosphere shifts towards stablecoins, the Central Bank of Korea has also adjusted its focus to this field. According to Bitcoinist, the financial institution has suspended the second phase testing of its Central Bank Digital Currency (CBDC) project - the Hank River Project.

It is worth noting that the Central Bank of Korea and seven participating banks completed the first phase of testing in June and planned to start the second phase by the end of this year. The now-suspended second phase was originally set to focus on testing peer-to-peer (P2P) transfers, expanding the coverage of payment merchants, and simplifying identity verification methods.

According to reports, the banks involved in the project had requested the Central Bank of Korea to establish a CBDC Retail User Practical Transaction Test Task Force, encompassing all relevant departments of the Central Bank of Korea and participating banks.

This request aims to formulate a long-term roadmap, including a commercialization plan after testing, as financial institutions were then bearing the "excess cost burden without a concrete commercialization plan."

According to a senior banking official, the Bank of Korea explained its decision to pause by stating that it will "adopt a wait-and-see approach and observe the developments", given that the legalization of stablecoins is currently underway, and the distinctions and coexistence between CBDCs, stablecoins, and deposit tokens are still unclear.