Governor of the Bank of Korea: Authorities plan to allow domestic institutions to issue virtual assets, but there are still controversies surrounding stablecoins

According to the Mobile Payment Network, Bank of Korea Governor Lee Chang-yong stated at the Asian Financial Forum in Hong Kong that due to market pressures, authorities have allowed South Korean residents to invest in virtual assets issued overseas. Meanwhile, financial regulators are studying the establishment of a new registration system to permit domestic institutions to issue virtual assets.

He pointed out that the won-denominated stablecoin is expected to be primarily used for cross-border transactions, while tokenized deposits will be more for domestic payments, but he emphasized that there are still many controversies surrounding stablecoins. He is concerned that once the won stablecoin is launched, it may be used to circumvent capital flow management measures, especially when combined with widely used and easily accessible dollar stablecoins, which poses even greater risks.

Lee Chang-yong mentioned that the transaction costs of dollar stablecoins are much lower than directly using dollars, and during exchange rate fluctuations, it can easily trigger large inflows of funds; moreover, most dollar stablecoins are issued by non-bank institutions, significantly increasing regulatory difficulties. In addition, South Korea's rapid payment system has matured, and the advantages of retail central bank digital currency (CBDC) are not obvious. The central bank is promoting several pilot projects to lay out tokenized deposits and wholesale CBDCs to maintain a dual financial system.