The Bank of Korea (BOK) has urged lawmakers to adopt a bank-led model for stablecoin issuance ahead of the upcoming regulatory framework, warning that Korean Won (KRW)-pegged tokens could “repeat past monetary failures.”
On Monday, the Bank of Korea released a 140-page report warning that stablecoins could unlock new possibilities for the Korean economy but could also “sow the seeds of new instability.”
The BOK report affirmed that the promise behind stablecoin raises unrealistic expectations in the market, arguing that “The pledge of ‘1 coin equals 1 won’ is merely a private agreement between issuers and users and is not legally or institutionally guaranteed by the central bank.”
Additionally, the central bank highlighted the gaps in consumer protection laws and the potential that these tokens could “enable regulatory evasion and capital flight, weaken the effectiveness of monetary policy and undermine banks’ traditional role as financial intermediaries.”
Amid the potential risks, the BOK considers that “trust is crucial to reliably support innovation, so institutional safeguards are necessary.” It reiterated that stablecoin issuance must be led and strictly regulated by banks to ensure reliability and public trust.
“If banks become the main issuers of stablecoins, or if stablecoins are issued through bank-led consortia, many of these associated risks could be managed under the current regulatory framework,” the Monday report explained. “Non-banking companies, such as IT firms, can also participate in bank-centered consortia to drive innovation and growth.”
Notably, financial institutions in Korea have been preparing for two potential legalization scenarios over the past few months, as it has been unclear if non-bank entities will be allowed to issue the digital assets.
Kim Chul, head of the BOK’s Payment & Settlement Systems Department, stated that under this approach, regulators can closely monitor the sector’s scale and maintain stability, “allowing this new form of currency to take root within the formal financial system.”
Another BOK official added that “stablecoin legislation is moving quickly, and we hope this report serves as a key reference for those discussions.” Ultimately, the central bank called for a joint policy council among monetary, foreign exchange, and financial authorities.
