Bank of Korea Warns Won Stablecoins Could Undermine Capital-Flow Management

South Korea’s central bank has publicly signaled strong reservations about permitting won-linked stablecoins without tight controls, arguing such tokens could complicate the management of cross-border capital movements. The governor endorsed a regulatory route that would allow domestic institutions to register as issuers, but emphasized that currency-pegged coins introduce distinct foreign-exchange vulnerabilities. Officials warned that won-denominated tokens, especially when circulating alongside dollar-pegged coins, might be exploited to bypass official capital flow measures in volatile markets. Those concerns have entered a wider political standoff over the country’s proposed Digital Asset Basic Act, where lawmakers remain divided on issuer eligibility, ownership limits for exchanges, and supervisory responsibilities. The central bank prefers issuance concentrated in banks to limit systemic and exchange-rate risks, while industry groups seek a more permissive model that permits non-bank participation under oversight. Attempts to bridge the gap — including a possible bank-led consortium model — have been discussed but have not produced consensus, delaying the bill and related initiatives such as domestic spot crypto ETFs and new trading permissions for listed companies. The debate is unfolding against rising macroeconomic pressure: trade frictions and a softer won heighten the odds of significant dollar outflows, increasing the stakes for any stablecoin framework. From a policy design perspective, the situation favors narrow issuing rights, explicit reserve and custody requirements, and real-time monitoring to detect cross-border token movement. Broad issuer access without robust safeguards would likely force regulators into harder interventions later, creating a tension between financial stability and innovation. Operationalizing a registration system will require clear standards for asset backing, auditability, and interoperability with foreign-exchange surveillance tools. In the absence of timely legislation, private stablecoins could proliferate, escalating regulatory uncertainty and the risk of regulatory arbitrage. A pragmatic path forward would pilot bank-led issuance while building supervisory capacity and technical infrastructure, limiting near-term contagion risks without permanently foreclosing broader participation. The outcome will significantly influence how Korea preserves capital control integrity while integrating programmable money and faster cross-border payment rails.