Bank of Korea Governor: Authorities plan to allow domestic institutions to issue virtual assets; stablecoins remain controversial.

PANews reported on January 27th that, according to Mobile Payment Network, Bank of Korea Governor Lee Chang-yong stated at the Asian Financial Forum in Hong Kong that, due to market pressure, the authorities have allowed South Korean residents to invest in virtual assets issued overseas. Simultaneously, financial regulators are studying a new registration system to allow domestic institutions to issue virtual assets. He pointed out that the won-denominated stablecoin is expected to be primarily used for cross-border transactions, while tokenized deposits will be used more for domestic payments. However, he emphasized that stablecoins are still subject to considerable controversy. He expressed concern that the won-denominated stablecoin could be used to circumvent capital flow management measures, especially when combined with widely used and easily accessible US dollar stablecoins, where the risk would be even greater.

Lee Chang-yong noted that the transaction costs of USD stablecoins are far lower than those of directly using USD, and exchange rate fluctuations can easily trigger a large influx of funds. Furthermore, most USD stablecoins are issued by non-bank institutions, significantly increasing the difficulty of regulation. In addition, South Korea's fast payment system is well-developed, making the advantages of retail central bank digital currencies (CBDCs) less obvious. The central bank is currently advancing several pilot programs, deploying tokenized deposits and wholesale CBDCs to maintain a two-tier financial system.