The Central Bank of South Korea is wary of stablecoin issuance by non-bank institutions, while market participants are actively preparing to respond.

The Central Bank of Korea recently issued a warning, expressing deep concerns over the issuance of stablecoins pegged to the won by non-bank entities, believing that this move may lead to market turmoil.

Central Bank Governor Lee Chang-yong pointed out at Thursday's press conference that if multiple non-bank institutions issue stablecoins, it may recreate the chaotic situation of rampant private currency issuance in the 19th century, which could interfere with the implementation of sovereign monetary policy and even challenge the regulatory framework under the foreign exchange liberalization policy.

He warned that arbitrary issuance of stablecoins would interfere with the implementation of monetary policy and may require a reconstruction of the Central Bank system. At the same time, the participation of non-bank entities in payment settlements would severely impact the profit model of banks.

Lee Chang-yong pointed out that this issue cannot be decided solely by the Central Bank and requires interdepartmental consultation. He stated that discussions will begin to determine the direction after the appointment of the relevant ministers. His remarks come at a time when South Korea's stablecoin development is progressing rapidly.

However, Min Byeong-deok, a member of the Democratic Party of Korea, recently submitted a draft of the "Basic Digital Asset Act" to build a more structured regulatory framework for crypto assets, which includes licensing requirements for stablecoin issuers. This law aims to supplement existing regulations and may open up participation in stablecoin issuance to non-bank entities.

In light of this potential change, bank officials revealed that, given the undefined issuance rights of non-bank entities, banks have also prepared two parallel plans: one is to explore a joint issuance model with banks, and the other is to make preliminary preparations to engage with non-bank entities.

It is worth noting that the South Korean Central Bank's actions seem to shift the focus toward stablecoins. According to reports, its CBDC project "Hank River" has been temporarily suspended after the first phase of testing, during which it will focus on testing point-to-point transfers, merchant coverage, and identity verification.

The Central Bank of South Korea also requires participating banks to establish a cross-departmental working group and develop a long-term plan roadmap, citing that current costs are too high and there is a lack of commercialization solutions.

Overall, given the uncertainty in the legalization process of stablecoins and the unclear policies on how CBDCs, stablecoins, and deposit tokens can be distinguished and coexist, the Central Bank of South Korea has had to adopt a cautious wait-and-see attitude.

#韩国央行 # stablecoin #金融监管 # CBDC