Stablecoins have become a “political hot potato” ahead of next month’s presidential elections, South Korean media outlets wrote on May 12.
Aju Kyungjae quoted the Bank of Korea (BOK) as stating that it alone should have the legal authority to approve plans to launch a won-based stablecoin.
South Korean Central Bank: Stablecoin Showdown Ahead?
Koh Kyung-chul, the head of the BOK’s electronic finance unit, explained:
“Stablecoins would have a significant impact on the implementation of central bank policies such as monetary policy and financial stability, as well as payments and settlements.”
The bank official added that the BOK should be involved from the “initial” stage. This will ensure that “any negative impact on central bank policy is minimized,” Koh said.
Koh added that the BOK should also be granted input should lawmakers decide to create stablecoin-related legislation. The official explained:
“Legislation design is important. This will help build a stable and sustainable digital payment ecosystem.”
The BOK appears to be concerned that a won-pegged stablecoin could replace the demand for legal currency. This, it worries, could have a significant knock-on effect for monetary policy.
Bank officials say they are aware that US dollar-pegged stablecoins like Tether (USDT) are already being used in place of the dollar in cross-border trade operations.
The central bank has already spoken about stablecoins at length this year. In its payment and settlement report last month, the BOK warned:
“Stablecoins can infringe upon monetary sovereignty and undermine the effectiveness of monetary policy. A careful review is necessary before they are approved.”
Earlier this month, the BOK Governor Lee Chang-yong issued another stablecoin warning. The Governor said that USDT “and other stablecoins” would “likely bypass South Korean capital regulations and foreign exchange regulations.” Lee Chang-yong concluded that stablecoin regulation “is an urgent matter.”
However, the presidential frontrunner and Democratic Party candidate Lee Jae-myung recently claimed that South Korea “must create a won-based stablecoin market.”
The DP leader spoke about KRW-pegged coins. He said that South Korea must “enter the stablecoin market quickly” or risk an “outflow of national wealth.”
‘Terra Collapse Should Serve as a Warning’
Lee Jae-myung’s comments sparked a backlash from Lee Jun-seok, the candidate for the Reform Party. The latter accused the DP candidate of making “dangerous and experimental” economic promises.
He also said that Lee Jae-myung had failed to learn the lessons of the calamitous collapse of the Terra ecosystem and its KRW-pegged stablecoin in May 2022.
Lee Jun-seok said that his rival was “bandying plausible-sounding words” like “stablecoin” about “without understanding anything about the market.”
Several Lee Jae-myung allies have jumped to the frontrunner’s defence. An ex-DP MP accused the Reform Party leader of failing to “familiarize himself with the basic concepts of global financial regulation.”
Should Lee Jae-myung win power on June 3, he and his party may find themselves at loggerheads with the BOK.
The DP lawmaker Min Byung-deok last month unveiled a private member’s bill entitled the Digital Asset Basic Act (literal translation).
Min’s bill stipulates that the regulatory Financial Services Commission, not the BOK, should be given the sole authority to approve stablecoin issuances.