Bank of Korea warns local stablecoins could boost dollar demand against presidential goals

Lee Chang-yong, the governor of South Korea's central bank, expressed concerns about the country's early-stage explorations of Korean won-pegged stablecoins, saying they could induce more demand for the U.S. dollar.

"Issuing won stablecoins may not reduce the use of dollar stablecoins, but rather facilitate the exchange between dollar stablecoins and won stablecoins, which may increase the demand for dollar stablecoins," Lee said in a press briefing on Wednesday.

Lee noted that this could pose challenges for the central bank in overseeing foreign exchange.

The central bank official's warning clashes with new South Korean President Lee Jae Myung's agenda to promote won-pegged stablecoins, mainly to serve the purpose of preventing capital flight in the era of digital finance.

Nonetheless, the BOK governor clarified that the central bank does not oppose the issuance of KRW stablecoins and sees a need for such assets, provided appropriate measures are in place to manage the risks.

The central bank also raised concerns about possible disruptions that the introduction of local stablecoins could cause to the banking sector, as payment and settlement services would be moved to non-banking entities.

"We need to paint the bigger picture on how the banking industry, such as its profitability, in case payment and settlement services move to [stablecoins]," Lee said.

The BOK leader added that the Ministry of Economy and Finance and the Financial Services Commission will discuss shaping policy around won-pegged stablecoins. 

Discussions around local stablecoins have accelerated following intensified efforts in the U.S. to establish a regulatory framework and promote dollar-pegged stablecoins, notably with the GENIUS Act recently passing its final Senate vote.

Stablecoins currently have a market capitalization of over $261 billion, with U.S. dollar-pegged stablecoins accounting for more than $253 billion, according to CoinGecko data .