South Korea’s central bank is at odds with lawmakers over how to regulate one of the world’s largest cryptocurrency markets, amid growing concerns that surging demand for stablecoins is driving capital outflows.
The ruling party has proposed legislation allowing companies with as little as 500 million won (approximately $360,000) in equity capital to issue won-backed stablecoins—cryptocurrencies pegged to fiat currency. However, the Bank of Korea warns that permitting non-bank issuance could trigger massive capital flight, undermining its ability to manage foreign exchange crises akin to the 1997 Asian financial meltdown.
“If we allow non-banks to issue stablecoins, this will cause big chaos like in the 19th century, when currencies issued by the private sector flooded the market,” Bank of Korea Governor Rhee Chang-yong said recently, referencing the US “free banking” era.
Rhee advocates that only commercial banks should be allowed to issue stablecoins under strict regulatory oversight, a stance that has frustrated some lawmakers. “Stablecoins are surging like a tsunami, but we are fighting over who will run a small boat in the face of a tsunami,” said Min Byung-duk, the lawmaker behind the proposal.
South Korea, home to 52 million people, has one of the world’s most vibrant crypto markets, with about a third of the population investing in digital assets. Retail holdings exceeded $70 billion at the end of last year, according to the central bank.
Dollar-backed stablecoins are particularly popular, with over $19 billion leaving the country in the first quarter of 2025 alone, mainly used by investors to access cheaper crypto on overseas exchanges. Stablecoins facilitate capital outflows because users can buy won-based coins domestically and convert them into dollars abroad with ease.
The Bank of Korea’s concern over these outflows led it last month to lift a 14-year ban on domestic institutional purchases of onshore foreign-currency bonds to attract offsetting capital inflows.
The ruling party argues that won-backed stablecoins could help retain funds domestically. Min urged lawmakers to swiftly establish a regulatory framework, noting that the US Congress recently passed similar legislation. “This is our last chance to take some portion of the market even if we can’t outsmart dollar stablecoins as a settlement tool,” he said. “Speed is the key.”
While the central bank acknowledges demand for won-backed stablecoins, it cautions they could still accelerate outflows by being easily convertible to dollar-backed alternatives. Last month, it suspended plans to launch a central bank digital currency (CBDC), with analysts citing concerns about market adoption if private-sector stablecoins gain ground.
Anticipating the law’s passage, eight commercial banks are jointly developing a won-backed stablecoin expected to launch in 2026. Meanwhile, Upbit, South Korea’s largest crypto exchange, and payments provider Naver Pay are collaborating on their own stablecoin.
Experts suggest won-backed stablecoins could become viable payment methods but are unlikely to reduce demand for dollar-backed stablecoins, which serve different purposes.
Among retail users, opinions vary. DH Kim, a dentist and user of dollar-backed stablecoins to trade on foreign platforms such as Binance, expressed skepticism: “It could be widely used but do I have to buy them? Not really.”
