Central Bank of Korea shows no opposition to stablecoin backed by won. Takes on a role in its supervision.
In a recent development, South Korea has taken significant strides to bolster its stablecoin regulation, with a focus on won-pegged stablecoins and increased bank oversight. The South Korean government published the Basic Digital Asset Act legislative bill last week, marking a significant step towards establishing a robust regulatory framework for digital assets.
Under the new legislation, the Financial Services Commission (FSC) has been granted significant powers over stablecoin issuers, setting a minimum capital requirement of won 1 billion ($720,000) for issuers and categorizing won-pegged stablecoins as neither securities nor electronic money.
The Bank of Korea (BOK) has also been given an advisory role in supervising stablecoin issuers, as per the Digital Asset Innovation Growth Act. This complementary legislation aims to refine the regulatory framework, inspired by the U.S. model, which suggests that South Korea is cautious about the oversight of both domestic and foreign stablecoin issuers.
The BOK Governor, Rhee Chang-yong, has expressed concerns about the potential transfer of payment settlement business from banks to non-banks and its impact on bank profitability and business structure. If deposits migrate away from banks, it may inhibit their lending ability or loans may become more expensive, according to the BOK Governor.
There is a growing concern about the dominance of US dollar-pegged stablecoins, which led South Korean banks to collaborate on a won-pegged stablecoin project. This initiative aims to counter dollar dominance and bolster South Korea's presence in the global digital finance market.
The regulatory environment emphasizes transparency and compliance. Stablecoins, regardless of their peg, must adhere to auditable reserve mechanisms to mitigate financial risks. However, the current regulations and concerns regarding dollar-based stablecoin issuance by companies like Tether and Circle in South Korea are not explicitly detailed in the available information.
The BOK can request stablecoin data from issuers and ask the FSC to perform an inspection. The Bank of Korea Governor has also expressed concerns about the potential ease of exchanging won-based stablecoins for dollar-based ones, which could make it difficult to manage foreign exchange. South Korea has capital controls that aim to regulate the inflow and outflow of foreign currencies, especially the dollar.
Recent developments include Circle, the issuer of USDC, reportedly meeting with the central bank and National Assembly, sparking speculation about potential plans to issue a Korean won stablecoin. Tether recently announced plans to launch its USDT on the local Kaia public blockchain.
The new bill also includes lighter touch regulation for small issuers. The BOK Governor plans to refine policies through inter-ministerial consultations once the Ministry of Strategy and Finance, the Financial Services Commission, and other relevant ministries are in place.
In summary, while detailed regulations for dollar-based stablecoins are not explicitly mentioned, the focus on developing a robust framework for stablecoin regulation and the preference for won-pegged stablecoins suggest a cautious approach to foreign stablecoin issuers in South Korea. The BOK's concerns extend beyond just foreign exchange to the health of local banks, emphasizing the importance of maintaining a balanced digital finance market in the country.
- The South Korean government, through the Financial Services Commission (FSC), has established a minimum capital requirement of won 1 billion ($720,000) for stablecoin issuers, signifying an intent to bolster the financial stability of the South Korean stablecoin market.
- The regulatory focus on stablecoins, in South Korea, includes auditable reserve mechanisms to ensure transparency and risk mitigation. However, there are concerns about the dominance of US dollar-pegged stablecoins in the global market.
- The Bank of Korea (BOK) has expressed concerns about the potential transfer of payment settlement business from banks to non-banks, as it could impact bank profitability and business structure, leading to potential inhibition of lending or increased expensive loans.
- In a strategic move, South Korean banks are collaborating on a won-pegged stablecoin project, aiming to counter the dominance of US dollar-pegged stablecoins and bolster South Korea's presence in the global digital finance market.
- The BOK Governor has emphasized the importance of maintaining a balanced digital finance market in South Korea, underscoring the need for inter-ministerial consultations to refine policies, ensuring the health of local banks and the stability of the South Korean finance sector.
