South Korea Eyes Domestic Crypto Issuance as Governor Warns on Stablecoin Risks – What’s the Plan?

Bank of Korea Governor Rhee Chang-yong revealed South Korea is considering a new registration regime that would allow domestic institutions to issue virtual assets, while warning that won-denominated stablecoins could enable capital flow circumvention.

Speaking at the Asian Financial Forum in Hong Kong, Rhee emphasized that exchange rate volatility could trigger rapid shifts into USD stablecoins and large fund transfers.

The announcement comes as South Korean regulators remain deadlocked over comprehensive stablecoin governance, with the Financial Services Commission and Bank of Korea split on whether issuance should be limited to bank-led consortia.

Meanwhile, the won has faced mounting pressure from currency swings and Trump’s tariff threats, which pushed the exchange rate to 1,446.2 won per dollar on Monday.

Governor Flags Capital Control Concerns Over Stablecoin Launch

Rhee stressed that once launched, won-denominated stablecoins “might be used to circumvent capital flow control measures, especially when combined with US dollar stablecoins.”

He noted that USD stablecoins are widely used and readily available, with transaction costs far lower than using dollars directly.

The governor warned that when exchange rate fluctuations trigger market expectations, funds may flow rapidly into dollar stablecoins, leading to large-scale cash transfers.

He added that non-bank issuance of stablecoins makes regulation particularly difficult for authorities.

Despite these concerns, Rhee acknowledged that market pressure has forced authorities to allow South Korean residents to invest in overseas-issued virtual assets.

He explained that won-denominated stablecoins would primarily serve cross-border transactions, while tokenized deposits would handle more domestic payments.

Won Under Pressure as Trump Tariff Threat Compounds Volatility

The won-dollar rate closed at 1,446.2 won on Monday, rising 5.6 won after President Donald Trump threatened to increase tariffs on Korean automobiles, lumber, and pharmaceuticals to 25% from 15%.

Trump posted on Truth Social that the “South Korean’s legislature is not living up to its deal with the United States,” announcing the tariff hike in response.

However, the currency’s losses proved limited as South Korea’s National Pension Service lowered its end-2026 foreign stock target to 37.2% from 38.9%, strengthening the won by as much as 2% to 1,433.3 per dollar following the announcement.

The welfare ministry said dollar demand was increasing with the pension fund’s growing size, while dollar supply in the onshore foreign exchange market was being outweighed by demand.

The KOSPI also rallied 2.73% to close at 5,084.85 on Tuesday despite Trump’s tariff threat, as investors bought the dip following Samsung Electronics’ 4.87% gain and SK Hynix’s 8.70% surge to a record high.

Min Kyung-won, a Woori Bank researcher, told the ChosunBiz that Trump’s statement “acts as a bearish factor for the won,” but added that the possibility of coordinated market intervention by US and Japanese foreign exchange authorities supports the currency’s upper range.

Regulatory Deadlock Stalls Stablecoin Framework Despite Market Momentum

The Bank of Korea has pushed for stablecoins to be issued only by consortia controlled by banks, insisting that lenders hold at least a 51% ownership stake to protect monetary stability.

The Financial Services Commission has resisted setting a fixed ownership threshold, warning it could sideline technology firms and slow innovation in digital payments.

Rhee emphasized at the Hong Kong forum that digital finance regulation should be strengthened, not relaxed, cautioning against forgetting the costs of the 2008 financial crisis.

He argued that South Korea’s fast payment system is highly developed and retail CBDCs do not offer significant advantages, though the central bank is conducting pilot projects with tokenized deposits and wholesale CBDCs.

The regulatory impasse persists despite strong market momentum, as South Korea ended its nine-year corporate crypto trading ban this month and passed amendments to the Capital Markets Act establishing legal frameworks for tokenized securities trading beginning January 2027.

Back in October, the Solana Foundation partnered with Wavebridge to develop a KRW-pegged stablecoin, while BDACS also launched KRW1 on Avalanche in September, with every token backed 1:1 by won held in escrow at Woori Bank.

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