TLDR
- South Korean regulators are assessing a registration system for domestic institutions to issue virtual asset stablecoins.
- Authorities allow residents to invest in overseas-issued virtual assets due to growing market demand.
- Officials expect won-denominated stablecoins to focus on cross-border payments, not domestic retail use.
- Regulators see foreign currency stablecoins as potential risks to capital flow controls during exchange rate volatility.
- The central bank prioritizes wholesale CBDCs and tokenized deposits over retail CBDCs to maintain the two-tier system
South Korea is actively reviewing whether to allow domestic institutions to issue virtual asset stablecoins under a new registration system, as financial authorities respond to rising investment in overseas digital assets. Bank of Korea Governor Lee Chang-yong said at the Asian Financial Forum in Hong Kong that while cross-border use cases are driving interest, domestic regulation remains essential.
Domestic Stablecoins for Cross-Border Transactions
Governor Lee confirmed that South Korean residents are currently permitted to invest in virtual assets issued abroad, a decision made in response to growing market demand. However, he added that the Financial Services Commission and related authorities are considering a new registration system that could allow domestic financial institutions to issue their own stablecoins in a regulated environment.
Lee noted that if approved, won-denominated stablecoins would likely be used for cross-border payments rather than domestic retail use. In contrast, tokenized deposits would better suit local payment systems and work within the established banking framework. Authorities are aiming to ensure a clear separation of use cases to manage financial risk effectively.
Lee emphasized that stablecoins, especially those denominated in foreign currencies like the US dollar, pose challenges to South Korea’s capital flow controls. He warned that during times of exchange rate volatility, investors may shift large amounts into dollar-based stablecoins, bypassing existing safeguards. He noted that the lower transaction costs and easy access to these foreign-issued assets could accelerate such fund movements.
Central Bank Projects and Regulatory Principles
Lee also stated that South Korea’s fast and efficient retail payment systems reduce the need for retail central bank digital currencies (CBDCs). Instead, the Bank of Korea is focusing on piloting wholesale CBDCs and tokenized deposits to support the financial system’s two-tier structure.
These pilots aim to test how digital assets can work alongside banks without displacing existing infrastructure. He explained that new tools must enhance the system without introducing instability or regulatory gaps. The central bank will continue refining these tools through collaboration with institutions and regulators.
Lee concluded that while easing regulations may stimulate short-term economic activity, past crises have shown the risks of weak oversight. He insisted that in digital finance, reforms must not become a race to lower standards but should focus on strengthening regulation to protect markets and consumers.
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