Last week South Korea published the Basic Digital Asset Act legislative bill, which gave significant powers of approval over stablecoin issuers to the Financial Services Commission (FSC) rather than the Bank of Korea (BOK). That was despite recent lobbying by the central bank for a key supervisory role. Yesterday the Democratic Party of Korea, which won this month’s Presidential election, introduced complementary legislation that adjusts this regulatory framework, the Digital Asset Innovation Growth Act.
While the newer bill is meant to supplement the Basic Digital Asset Act, there’s considerable overlap, especially regarding stablecoin issuance. For example, the minimum capital requirement for an issuer was doubled from won 500 million ($360,000) to won 1 billion ($720,000). The new legislation also addresses some of the central bank’s earlier concerns about regulatory oversight by providing a role for BOK.
While issuer supervision still falls to the FSC, the central bank can express an opinion on any won stablecoin issuer and the FSC is obliged to comply unless it has a good reason. The Bank of Korea can also ask for stablecoin data from the issuer at any time and request that the Financial Services Commission perform an inspection, Korea Economic Daily reported. There’s a lighter touch regulation for small issuers, which have not exceeded a billion won over the past year. The bill also states that won stablecoins are neither securities nor electronic money.
When the first bill was released last week, Yonhap News described the central bank’s reaction as “panic”. Yesterday BOK Governor Rhee Chang-yong said, “I think a won-based stablecoin is necessary, and I don’t oppose its issuance.”
The Bank of Korea Governor’s stablecoin concerns
However, he has some reservations. “If a won-based stablecoin is issued, it will be easier to exchange for dollar-based stablecoins and make it difficult to manage foreign exchange,” he said according to Nate News. This foreign exchange concern reflects broader worries about monetary policy control. South Korea has capital controls that aim to regulate the inflow and outflow of foreign currencies, especially the dollar.
News reports regarding both sets of regulations only mentioned the issuance of won-based stablecoins, not dollar ones which already circulate freely in the country. Tether recently announced plans to launch its USDT on the local Kaia public blockchain. USDC issuer Circle reportedly met with the central bank and National Assembly with plans to visit the FSC, triggering speculation that it might want to issue a Korean won stablecoin.
Meanwhile, the BOK Governor’s concerns extend from foreign exchange to the health of local banks. “If payment settlement business is transferred from banks to non-banks, we need to draw a big picture regarding the profitability of banks and changes in business structure.” This leans into long held concerns that if deposits migrate away from banks, it will inhibit their lending ability or loans will become more expensive.
The Governor concluded, “Once the Ministry of Strategy and Finance, the Financial Services Commission and other relevant ministries are in place, we plan to refine policies through inter-ministerial consultations.”
