Bank of Korea deputy chief says desirable to introduce stablecoins gradually

SEOUL, June 24 (Reuters) – The senior deputy governor of South Korea’s central bank said it was desirable to introduce won-denominated stablecoins at a gradual pace, first with rigorously-regulated commercial banks.

Stablecoins, a type of cryptocurrency designed to maintain a constant value – typically pegged at 1:1 to the U.S. dollar – are widely used by crypto traders to move funds between tokens, and are starting to be adopted by more and more companies.

“It is desirable to first allow banks, which are under a high level of regulations, to issue (won-based stablecoins) and gradually expand to the non-bank sector with the experience,” Ryoo Sang-dai, senior deputy governor of the Bank of Korea (BOK), said at a press conference.

Ryoo said introducing stablecoins could have a significant impact on monetary policy and the transaction settlement system, as he echoed earlier concerns about capital flows raised by Governor Rhee Chang-yong and noted the need for a safety net to prevent financial market disorder and ensure user protection.

South Korea’s left-leaning President, Lee Jae Myung, is seen delivering on his election pledge to allow companies to issue won-based stablecoins, with his Democratic Party proposing legislation designed to set up necessary regulatory infrastructure, so the country does not fall behind.

Ryoo also said rising housing prices and household debt had become a more important factor for the central bank, which is currently in an easing cycle. Last month’s interest rate cut brought the policy rate to somewhere in the middle of the neutral range, he added.

The BOK will consult with major commercial banks to prepare a second pilot test of its central bank digital currency (CBDC), as the new administration’s policy stance becomes clearer, Ryoo said.

The central bank’s first pilot test ends next week, after it launched a joint project with the Bank for International Settlements, dubbed the central bankers’ central bank, to develop a digital currency in late 2023.

Given the trend of digitalisation, authorities will also speed up market reform efforts to open up its currency market to foreign investors, after a year of extending trading hours and allowing overseas participation, Ryoo said.