Bank of Korea, Indicates Strengthening Stablecoin Regulations…“Concerns Over Damaging Monetary Policy Grow”
2024 Payment Settlement Report Briefing Held At Bank Of Korea In Jung-gu, Seoul On 21st (Source: Bank Of Korea)
The Bank Of Korea pointed out the side effects of the expansion of stablecoins as a means of payment on the central bank's monetary policy and stated that an independent regulatory framework is needed. As the rapid growth of the virtual asset market increases the possibility of stablecoins replacing legal tender, it is urgent for a policy response.
The Bank Of Korea presented the current state of domestic virtual asset trading and the future regulatory direction through the '2024 Payment Settlement Report' announced on the 21st. According to the report, as of the end of December last year, the number of investors at the five major domestic cryptocurrency exchanges amounted to 18.25 million, with assets held amounting to 104.1 trillion KRW and the daily average trading volume recorded at 17.2 trillion KRW. These figures have increased by 1.53 million people, 45.5 trillion KRW, and 14.3 trillion KRW, respectively, compared to July of the previous year.
The Bank Of Korea cited the approval of the Bitcoin spot ETF in the United States and Hong Kong, the implementation of the EU's Crypto Asset Regulation (MiCA), and the re-election confirmation of Trump, who has a pro-cryptocurrency stance, as background for the market expansion. As a result, deposits, assets held, and trading volume all significantly increased.
Stablecoins are cryptocurrencies designed to link their value to legal currency, making them less volatile in price and easy to use as a means of payment. Lee Byeong-mok, Director Of Financial Settlement Department Of Bank Of Korea, explained at the conference, “If stablecoins become firmly established as a means of payment in the private sector, the use of legal currency will decrease, and as the deposit base weakens, uncertainty increases in the monetary policy transmission route.”
Director Lee also expressed concern, saying, “Since the reserve assets backing the issuance of stablecoins are mainly concentrated in deposits or government bonds, if the value shakes, large-scale redemption requests may occur,” adding, “If an issuing institution is faced with a situation where it has to withdraw deposits or sell government bonds on a large scale, market turmoil is inevitable.”
Lee Jong-ryeol, Deputy Governor Of Bank Of Korea, affirmed at the briefing on this day that “even if stablecoins spread as digital currency, the issuance of physical currency will continue.” He emphasized, “If electricity or communication is cut off, digital means of payment do not function, and considering those not familiar with IT such as the elderly, physical currency is still essential,” and “The issuance of physical currency will not be discontinued, to maintain a reliable conversion system between digital and physical.”
The Bank Of Korea plans to actively participate in the second phase of legislative discussions led by the Virtual Assets Committee. These discussions are expected to fully address the expansion of corporate participation in the cryptocurrency market, stablecoin regulatory alignment, and user protection measures. The Bank Of Korea is committed to continuously presenting its stance on the regulatory direction to ensure that the role and policy effects of the central bank are not hindered in this process.