SEOUL, April 21 (AJP) - The Bank of Korea plans to take an active role in upcoming legislative deliberations on virtual assets, stressing the need for a distinct regulatory framework for stablecoins due to their potential impact on monetary policy and financial stability.
In its report released Monday, the central bank warned that stablecoins — cryptocurrencies typically pegged to a national currency — carry characteristics that differ significantly from other digital assets and could pose systemic risks if left unregulated.
“Stablecoins possess inherent payment instrument properties,” the report stated. “If they become widely used as substitutes for legal tender, they could undermine the effectiveness of central bank policies, disrupt financial stability, and pose risks to payment systems. A separate regulatory framework is essential.”
As of December 2024, South Korea's five major virtual asset exchanges reported 18.25 million investors holding assets valued at 104.1 trillion won (approximately $76 billion), with an average daily trading volume of 17.2 trillion won.
The Bank of Korea attributed the market’s growth to the approval of spot cryptocurrency exchange-traded funds (ETFs) in the United States and Hong Kong, as well as the European Union’s implementation of the Markets in Crypto-Assets (MiCA) Regulation.
The central bank also cited a surge in trading activity and investor inflows following the election of U.S. President Donald Trump, who has expressed support for the virtual asset sector.
At a press briefing, Lee Byung-mok, director of the BOK’s Financial Settlement Bureau, cautioned that the stability of stablecoins could be threatened by external shocks.
“If a stablecoin loses its one-to-one peg with legal tender, investors will rush to redeem, prompting issuers to withdraw substantial reserves,” he said. “Such scenarios could lead to liquidity stress and broader financial disruptions.”
Deputy Governor Lee Jong-ryeol also addressed the central bank’s ongoing digital currency initiative, known as Project Hangang, and reassured the public that physical cash would remain in circulation.
“Digital payment systems are vulnerable to power outages and communication failures,” Lee said. “Physical currency remains essential, particularly for the elderly and those unfamiliar with digital technologies. To maintain public trust, we will continue to issue physical currency and ensure its interchangeability with digital forms.”
reporter
Candice Kim
candicekim1121@ajupress.com
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