South Korean Central Bank Vice Governor: Hope to gradually introduce stablecoins, preferably starting with trials in banks.

South Korea's Central Bank Senior Vice Governor Ryu Sang-dun said on Tuesday that the introduction of a Korean won stablecoin should adopt a gradual model of "first banks, then non-bank institutions" to ensure financial stability. He emphasized that stablecoins could impact monetary policy and payment systems, and a safety mechanism needs to be established. This move echoes concerns expressed by Bank of Korea Governor Lee Chang-yong regarding capital liquidity.

Written by: Fang Jiayao

Source: Wall Street Watch

On Tuesday, Bank of Korea Senior Deputy Governor Yoo Sang-don stated that the introduction of a won-denominated stablecoin should be gradual, starting with the issuance of won stablecoins by the most strictly regulated commercial banks, and then gradually allowing non-bank institutions once there is experience. This statement marks an important step for South Korea in the construction of its digital currency regulatory framework.

Start from the bank pilot

Liu Xiangdun emphasized at the press conference that the introduction of stablecoins could have a significant impact on monetary policy and the payment settlement system, and therefore, a complete security mechanism must be established to prevent fluctuations in the financial market and protect user rights.

Liu Xiangdun also echoed the concerns of South Korea's Central Bank Governor Lee Chang-yong regarding capital flows and financial stability. Last Wednesday, South Korea's Central Bank Governor Lee Chang-yong issued a warning that, although he does not oppose the issuance of a Korean won stablecoin, he is worried that this move may backfire—failing to reduce dependence on USD stablecoins, but rather exacerbating the complexity of foreign exchange controls and threatening the effectiveness of monetary policy.

Currently, the government led by South Korean President Lee Jae-myung is accelerating the legislative process to implement its policy commitments made during the campaign, which is to allow companies to issue Korean won stablecoins. The ruling Democratic Party has proposed a draft aimed at establishing a sound regulatory framework to ensure that South Korea does not fall behind other countries in the digital currency field.

A stablecoin is a type of cryptocurrency designed to maintain a stable value, typically pegged to the US dollar at a 1:1 ratio. Cryptocurrency traders use it to transfer between different coins, and it is now gradually being adopted by businesses.

Aside from the stablecoin topic, Ryu Sang-dun also stated that rising housing prices and increasing household debt are becoming a focus for the Central Bank. Against the backdrop of falling inflation, the Bank of Korea has shifted to an accommodative policy, with last month's interest rate cut bringing the policy rate down to the median level of the neutral range.

Liu Xiangdun also stated that the rise in housing prices and the issue of household debt are becoming new focal points of concern for the Central Bank. The South Korean Central Bank is currently in an easing cycle, with last month's interest rate cut bringing the policy rate to the median level of the neutral range.

He also revealed that the Bank of Korea plans to consult with major commercial banks to prepare for the second round of pilot testing for the central bank digital currency. The first round of pilot testing will end next week, and the project is a joint initiative with the Bank for International Settlements that began at the end of 2023.

At the same time, considering the trend of digitalization, South Korea is also promoting the internationalization reform of its local currency market, further opening up the local currency market to foreign investors. Over the past year, regulators have extended market trading hours and relaxed access conditions for foreign investors.