Key Takeaways
- South Korea’s Digital Asset Basic Act could pave the way for won-backed stablecoins.
- Bank of Korea Governor Rhee Chang-yong will meet with bank presidents to discuss the issue.
- Local currency stablecoins are increasingly viewed as an important bulwark against over-dollarization.
Ahead of last week’s election, South Korea’s new president, Lee Jae-myung, vowed to open the door to spot crypto exchange-traded funds (ETFs) and won-backed stablecoins.
In an early sign that the new government is serious about crypto policy reform, local media have reported that Bank of Korea Governor Rhee Chang-yong will meet with bank chiefs to discuss potential changes to stablecoin rules.
Seoul Set To Allow Won-Backed Stablecoins
As first reported by Newsis, Rhee Chang-yong is scheduled to attend a dinner meeting of bank presidents on June 11. Park Jong-woo, the central bank’s deputy governor in charge of monetary policy and financial markets, will also attend.
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Among other priorities, the meeting is expected to center on a discussion of stablecoin policy in light of ongoing legislative developments.
On Tuesday, June 10, the ruling Democratic Party of Korea proposed the Digital Asset Basic Act.
Provisions of the bill include legalizing won-backed stablecoins and creating a regulatory framework for issuers. Reflecting similar legislation elsewhere, the Digital Asset Basic Act would create minimum reserve requirements and establish a licensing regime under the country’s financial regulator.
Stablecoins and Monetary Sovereignty
While on the campaign trail, Lee Jae-myung voiced support for won-backed stablecoins on the grounds that they may help prevent the outflow of capital to USD-denominated coins.
Amid snowballing mainstream adoption, the dollar’s current dominance in stablecoin markets is of growing concern for central banks around the world.
Central bankers have warned that these increasingly popular forms of digital money risk creating a system where instruments not denominated in the sovereign currency become the primary means of payment.
As the Bank of Japan’s Deputy Governor Shinichi Uchida observed this month, this “is a scenario that the Bank or any central bank would not want to see happen.”
Diversifying Digital Money
In the long run, Central Bank Digital Currencies (CBDCs) will likely provide a crucial line of defense against such dollarization. But in the meantime, stablecoins denominated in local currencies could serve a similar function.
Non-dollar stablecoins are already rising in popularity, although they still make up less than one percent of the overall market.
Meanwhile, some governments have implemented policies designed to limit the use of dollar-denominated stablecoins for payments.
For example, technical standards that complement the EU’s Markets in Crypto Assets (MiCA) regulation limit non-euro stablecoin payments within the eurozone to a million transactions or 200 million euros in volume per day.
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