Central Bank of Korea disbands CBDC Research division, establishes Steady Coin Study Group instead.
South Korea has taken a significant step towards regulating stablecoins with the introduction of landmark legislation aimed at enhancing transparency, protecting users, and localizing digital finance. The new measures, which require stablecoin issuers to maintain at least 5 billion won in capital and 100% full reserve backing with Korean assets, are part of an effort to reduce dependence on U.S. dollar-pegged assets [1][3].
The Bank of Korea (BoK) has established a Virtual Asset Committee to monitor crypto activities and stablecoins, especially given plans by major Korean banks to issue a won-pegged stablecoin by late 2025 or early 2026 [4]. The BoK favours limiting stablecoin issuance to banks to manage financial stability risks, but this appears unlikely as both major political parties in Korea have tabled separate stablecoin bills this week [2].
The new legislation also grants the Financial Supervisory Commission and BoK significant oversight and emergency powers to preserve market order and support monetary policy objectives [3]. This is crucial, as experts warn that expanding won-pegged stablecoins could increase the currency's exposure to 24/7 global trading and speculative attacks, which may undermine Korea’s exchange rate controls and complicate monetary policy management since the won is currently nonconvertible and tightly controlled offshore [2].
The BoK's Virtual Asset Committee will address these concerns and help navigate the challenges of balancing innovation, stability, and currency controls as stablecoins introduce new dynamics to the financial system. The central bank has also expressed concerns about financial stability and seeks a supervisory role over stablecoins [3].
The BoK's Project Han, a wholesale central bank digital currency and tokenized deposit initiative, has faced resistance from participating banks, leading to its suspension [5]. However, the BoK combined bank deposit tokens with a wholesale CBDC for interbank settlement in Project Han [1].
Meanwhile, seven financial institutions in Korea have formed a consortium to launch their own stablecoins [2]. The scale of any stablecoin issuance remains uncertain, with questions about its potential impact on monetary or exchange rate policies [3].
Min Byung-duk, chair of the ruling party's Special Committee on Digital Assets, has compared the surge of stablecoins to a tsunami [2]. Governments are compelled to respond quickly to America's Genius Act for stablecoins, which could create confusion, as Brazil's central bank took a similar approach in promoting a concept as a CBDC [1].
The BoK has renamed its Digital Currency Research Lab, dropping the word "research" from the title [6]. One of the bills supports interest-bearing stablecoins, while the other does not [2]. The ultimate influence on Korea’s monetary sovereignty will depend on the scale of stablecoin issuance and adoption [2][3].
In summary, South Korea’s new stablecoin legislation and the BoK’s Virtual Asset Committee represent proactive steps to regulate digital assets, promote a domestic stablecoin ecosystem, and preserve monetary policy effectiveness amid growing cryptocurrency integration [1][3][4]. However, challenges remain in balancing innovation, stability, and currency controls as stablecoins introduce new dynamics to the financial system.
The new South Korean legislation empowers the Financial Supervisory Commission and the Bank of Korea (BoK) to oversee stablecoin activities, aimed at minimizing risks and encouraging innovation in retail business [1]. The BoK favors limiting stablecoin issuance to banks for fiscal stability, but political parties have tabled separate bills on the matter this week [2].
As the BoK considers the potential impact of wholesale central bank digital currencies (CBDCs) on finance and business, its Virtual Asset Committee will examine concerns about financial stability and currency controls [3]. Meanwhile, seven Korean financial institutions have formed a consortium to issue their own stablecoins, which may have unforeseeable effects on monetary or exchange rate policies [2].
Experts and governments are grappling with the implications of expanding stablecoins, as their 24/7 global trading could increase a currency's exposure to speculative attacks and undermine exchange rate controls [3]. Governments, like Brazil's central bank, are taking steps to promote CBDCs as a response to America's Genius Act for stablecoins [1].
The BoK's Digital Currency Research Lab has been renamed to enhance its focus on stablecoin integration, while the Korean government is deliberating bills that support or inhibit interest-bearing stablecoins [6][2]. The ultimate outcome of these regulatory decisions will determine the extent of Korea’s monetary sovereignty, as the growth and adoption of stablecoins could reshape the economy and global finance [2][3].
In this rapidly changing technological landscape, the BoK will play a pivotal role in balancing innovation, stability, and maintaining control over its currency, as stablecoins offer new insights into the future of digital finance and currency management [1][4].
