Korea must weigh the risks and rewards of stablecoins amid intensifying dispute

In Seoul’s financial circles, a new image is emerging: a digital coin emblazoned with the South Korean flag, suspended somewhere between statecraft and speculation. Once a fringe idea among cryptocurrency enthusiasts, the notion of a won-backed stablecoin has moved to the center of the country’s monetary policy debate.

What appears to be a pragmatic embrace of innovation conceals deeper tensions about the architecture of money, institutional trust and the evolving role of central banks in a digitized economy.

At the core of the issue lies a contradiction. President Lee Jae Myung’s administration has pledged to foster a stablecoin ecosystem to keep pace with global developments and safeguard monetary sovereignty. The ruling Democratic Party of Korea is advancing legislation to allow private companies — with as little as 10 billion won ($7.4 million) in capital — to issue coins fully backed by the Korean won. Major banks are already registering trademarks and forming blockchain partnerships. Related equities are climbing on speculative enthusiasm.

Yet as momentum builds, the Bank of Korea is applying the brakes. Its own pilot project for a central bank digital currency, once touted as a state-led alternative to private stablecoins, has lost traction after years of investment. The central bank, once positioned to shape the digital finance agenda, now finds itself increasingly marginalized. Officials warn that if the market is flooded with privately issued pseudo-money, the bank’s ability to manage interest rates, control liquidity and maintain financial stability could be severely compromised.

These concerns are not theoretical. The global stablecoin market is overwhelmingly dominated by dollar-based tokens such as USDT and USDC, which account for over 99 percent of transaction volume. Proponents of a Korean alternative argue that without a domestic option, the country risks capital flight and diminished control over trade settlement.

But these arguments remain speculative. The BOK, echoing the Bank for International Settlements, has repeatedly cautioned that stablecoins issued by private firms — even when pegged to fiat currencies — pose systemic risks. These include liquidity mismatches, opaque reserves and the danger of a “coin run” in which investor panic depletes backing assets and triggers broader financial contagion. The collapse of Terra-Luna in 2022 still casts a long shadow over the debate.

Procedurally, the rush toward legislation raises additional concerns. Multiple competing bills are circulating in the National Assembly. Oversight is fragmented among the BOK, the Financial Services Commission and the Ministry of Economy and Finance, with no unified strategy in place. The absence of robust consumer protections, capital requirements and clear supervisory authority underscores the lack of regulatory preparedness. Reports that the Presidential Commission on Policy Planning has urged the BOK to “show flexibility” and devise alternatives reflect mounting political pressure on the central bank to step aside.

This disjointed approach points to a deeper dilemma. South Korea seeks to lead in digital finance but remains uncertain about how monetary authority should be shared — or defended — in an era of decentralization. The CBDC’s limited progress reflects institutional inertia in the face of rapid technological disruption. Meanwhile, private sector players are advancing with greater speed, louder voices and fewer constraints.

The implications extend beyond implementation. A poorly regulated stablecoin framework could distort trade data, fuel asset bubbles and erode trust in the won. Yet delaying reform risks entrenching dollar dependence and leaving South Korea behind in emerging payment systems. The task is to permit innovation while preserving accountability and credibility.

South Korea is not wrong to explore stablecoins. But it is wrong to move without a cohesive plan. True stability is not found in code or collateral alone, but in the strength of the institutions that stand behind them.


khnews@heraldcorp.com