South Korea is signaling greater caution regarding the digital asset market, particularly stablecoins, amid volatile global Capital flows and increasing regulatory pressure. Speaking at the Asian Financial Forum in Hong Kong, Bank of Korea (BoK) Governor Rhee Chang-yong stated that Seoul had to loosen restrictions to some extent when allowing citizens to invest in overseas-issued digital assets in response to market realities and growing investor demand.
According to Mr. Rhee, South Korean regulators are currently considering establishing a completely new registration mechanism for digital assets. This mechanism is designed to allow domestic organizations to issue digital assets legally, transparently, and under control, instead of allowing this activity to take place in a legal "grey area" as before. This is XEM as a crucial step in South Korea's long-term strategy to bring the crypto and blockchain market under formal regulation, similar to how the country has done with its traditional stock and financial markets.
However, alongside this more open approach, the Bank of Korea (BoK) Governor also highlighted a number of worrying risks, particularly surrounding stablecoins. He warned that a stablecoin Peg to the South Korean won (KRW) could be exploited to circumvent current Capital controls. In a scenario of significant exchange rate volatility or declining confidence in the domestic currency, domestic funds could quickly shift to USD- Peg stablecoins, triggering large-scale and difficult-to-control Capital flows that pose risks to financial stability and monetary policy.
Furthermore, the involvement of non-bank institutions in issuing stablecoins also increases the complexity of supervision. Unlike traditional banks, which are already subject to strict regulations, technology or fintech companies issuing stablecoins can operate with more flexible models, making it difficult for regulators to monitor reserves, liquidation , and regulatory compliance.
