South Korea’s central bank flags FX risks as lawmakers debate stablecoin issuance

South Korea’s central bank chief warned that Korean won-denominated stablecoins could complicate capital flow management, adding a note of caution to an ongoing debate among lawmakers over whether and how domestic stablecoins should be issued, according to local reports.

Speaking at the Asian Financial Forum in Hong Kong, Bank of Korea Governor Lee Chang-yong said authorities are considering a new registration framework that would allow domestic institutions to issue virtual assets, according to a report by Radio Television Hong Kong. He cautioned, however, that stablecoins remain controversial because of their potential impact on foreign exchange stability.

Lee said won-pegged stablecoins would likely be used mainly for cross-border transactions. He warned that won stablecoins, combined with US dollar stablecoins, could be used to bypass capital flow management measures in periods of volatility. 

The remarks added the central bank’s perspective to the ongoing legislative standoff in South Korea, where policymakers are trying to formalize digital asset issuance without weakening financial oversight. While the country has signaled openness to regulated crypto activity, officials remain cautious about mechanisms that could undermine existing foreign exchange controls. 

Debate over stablecoin rules has slowed progress on South Korea’s proposed Digital Asset Basic Act, often described as the second phase of the country’s virtual asset regulations.

According to a Sunday report by Chosun Ilbo, submission of the bill to the National Assembly has been postponed as disagreements persist over stablecoin issuance rules, ownership caps for exchanges and regulatory oversight. 

At the center of the dispute is who should be allowed to issue won-pegged stablecoins. The central bank argued that issuance should be led primarily by banks to limit systemic and foreign exchange risks.

However, industry groups pushed for a broader authorization system that would allow non-bank companies to participate under regulatory supervision. 

Financial authorities have reportedly explored a compromise involving bank-led groups, but progress has stalled. 

Related: South Korean lawmaker faces scrutiny over family ties to crypto exchange: Report

The legislative deadlock also delayed discussions on related initiatives, including allowing listed companies to trade crypto and the introduction of spot crypto exchange-traded funds (ETFs) in South Korea. 

Lee’s warnings come against a backdrop of renewed pressure on the Korean won.

According to a Tuesday Reuters report, South Korean authorities are grappling with potential large-scale dollar outflows amid trade tensions with the US and a weakening currency. 

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