South Korea Eyes Domestic Virtual Asset Issuance
During the recent Asian Financial Forum, South Korean central bank governor Lee Chang-yong announced that due to rising market demand, the government has approved allowing residents to invest in overseas-issued virtual assets. Meanwhile, regulators are working on a new framework to enable local institutions to issue such assets.
Potential and Risks of Stablecoins
Lee noted that stablecoins pegged to the Korean won may primarily be used in cross-border transactions, while tokenized deposits are more suited for domestic payments. However, stablecoins remain a controversial topic, especially regarding the risk of circumventing capital control regulations.
Challenges Posed by Dollar-Backed Stablecoins
Dollar-pegged stablecoins currently dominate the market due to their low transaction costs and ease of access. However, their issuance by non-bank entities presents regulatory challenges. The governor also warned that during periods of exchange rate volatility, these coins could trigger rapid capital flows, potentially leading to systemic risks.
Path Forward for Central Bank Digital Currencies
South Korea's real-time payment system is already highly developed, making the efficiency gains from retail central bank digital currency (CBDC) less significant. To keep pace with financial innovation, the central bank is conducting pilot programs exploring tokenized deposits and wholesale CBDC to preserve the two-tiered financial structure.