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South Korea’s central bank has emphasized the importance of having legal authority over the approval of won-based stablecoins, warning that these digital assets could disrupt monetary policy if treated like legal tender.

The Role of the Bank of Korea in Stablecoin Regulation

The Bank of Korea (BOK) has stated that monetary authorities must be involved from the outset if South Korea allows the issuance of stablecoins tied to the Korean won. A senior official from the BOK highlighted the potential complications these digital assets could pose to monetary policy operations, stressing the need for the central bank’s oversight in the approval process.

“If won-based stablecoins are used like legal tender, they could complicate monetary policy operations, requiring the Bank of Korea’s involvement in the authorization process,” the official explained.

Similar to the United States, where the Federal Reserve exercises authority in related legislation, the BOK is seeking substantial legal powers to regulate stablecoin issuers effectively.

Potential Impact on Monetary Policy and Financial Stability

Koh Kyung-chul, head of the central bank’s electronic finance team, has previously raised concerns about the influence stablecoins could have on monetary policy, financial stability, and payment systems. He emphasized that the BOK should play a significant role at the authorization stage to mitigate these risks.

The growing popularity of stablecoins globally underscores the importance of proactive regulatory measures. Without adequate oversight, these digital currencies could undermine traditional monetary frameworks and financial stability.

Stablecoin Transactions in South Korea

Recent data highlights the increasing use of stablecoins in South Korea. In early May, Democratic Party lawmaker Min Byung-duk revealed that a significant portion of cryptocurrency transactions from South Korea’s major exchanges involved dollar-based stablecoins.

According to the Financial Supervisory Service, approximately 56.8 trillion won (around $40.6 billion) worth of cryptocurrencies were transferred overseas between January and March from five major crypto exchanges: Upbit, Bithumb, Coinone, Cobbit, and Gopax. Of this amount, 26.87 trillion won, or 47.3%, consisted of stablecoins like Tether (USDT) and USD Coin (USDC).

Key Takeaways for Investors

As stablecoins gain traction in South Korea, investors should keep the following tips in mind:

  • Monitor regulatory developments, as oversight could impact the adoption and usage of stablecoins tied to the Korean won.
  • Understand the risks associated with stablecoins, including their potential effects on monetary policy and financial systems.
  • Stay informed about the volume of stablecoin transactions, which reflects market trends and adoption rates.

South Korea’s evolving stance on stablecoins highlights the importance of balancing innovation with financial stability. As regulatory frameworks take shape, the involvement of the Bank of Korea will likely play a pivotal role in ensuring responsible growth within the cryptocurrency space.

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