BOK calls for bank-led stablecoin amid parliamentary fervor for token

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BOK calls for bank-led stablecoin amid parliamentary fervor for token

Published: 27 Oct. 2025, 19:27 Updated: 29 Oct. 2025, 18:27

Audio report: written by reporters, read by AI

A representation of cryptocurrencies is seen in this illustration taken on Jan. 24, 2022. [REUTERS/YONHAP]

The Bank of Korea (BOK) has warned that digital tokens pegged to the won could repeat past monetary failures if not backed by public trust and strict oversight, as lawmakers rush to pass the country’s first stablecoin law by the end of the year.

In a 141-page report released Monday, the central bank cautioned that “currency functions on trust, not technology,” urging that any won-linked stablecoin must be anchored in a bank-led consortium model to ensure reliability.

The report stresses that the promise behind a stablecoin — that “one coin equals one won” — collapses the moment that link breaks, eliminating the "stable" aspect. The BOK reiterated that any stablecoin initiative must start with a bank-led consortium model to ensure reliability and public confidence.

The central bank said stablecoins are often portrayed as a “golden key” to financial innovation, raising unrealistic expectations in the market.

However, it noted that issuers of these digital assets do not share their returns with the public the way banks distribute deposit interest or the central bank contributes seigniorage — profit made by issuing currency — to society.

The report urged policymakers to carefully weigh whether these coins will generate social benefits as a new form of money or simply serve as profit vehicles for private issuers managing reserve assets.

The BOK identified seven key risks that stablecoins could pose to financial and monetary stability.

It warned that they are prone to depegging, where the coin loses its one-to-one value with legal tender, and to coin runs, or sudden waves of mass redemptions. The central bank also pointed to gaps in consumer protection and the potential erosion of the long-held separation between finance and industry. In addition, stablecoins could enable regulatory evasion and capital flight, weaken the effectiveness of monetary policy and undermine banks’ traditional role as financial intermediaries, the central bank said.

The report cited a historical parallel: During the reign of King Gojong (1864-1907), the government’s issuance of dangbaekjeon — copper coins worth 100 times their actual value — led to hyperinflation and economic collapse as the public lost confidence and refused to accept the currency.

A banner for Circle Internet Group, the issuer of one of the world’s biggest stablecoins, hangs on the front of the New York Stock Exchange to celebrate the company’s initial public offering in New York on June 5. [REUTERS/YONHAP]

The report also referenced the 2024 collapse of Silicon Valley Bank, when Circle’s dollar-pegged stablecoin USDC plunged to 88 cents. Although only 8 percent of its reserves were held at the bank, redemptions worth $7.8 billion — about 18 percent of its market capitalization — were demanded within days.

Concerns are even greater for nondollar stablecoins, where liquidity is thinner and the risk of depegging higher, the BOK said.

“Even the euro-linked EURC mostly trades below one euro,” said Park Jun-hong, a manager at the BOK’s payment systems policy team. “Even a 100 percent reserve in safe assets does not guarantee stability. A coin run would unfold faster than a bank run."

Such large-scale redemption requests could be triggered by sudden drops in government bond prices or information technology system failures. But unlike bank deposits, stablecoins lack central bank backing or deposit insurance.

The BOK also highlighted that the anonymity of stablecoins makes them vulnerable to money laundering, foreign exchange violations and illicit capital outflows. Last year, 63 percent of illegal crypto transactions worldwide involved stablecoins, and in Korea, the share of illegal foreign exchange transactions related to cryptocurrencies surged from 3 percent in 2020 to 52 percent last year.

Bank of Korea officials speak during a press briefing on key issues and policy responses related to a potential won-based stablecoin at the central bank's headquarters in Jung District, central Seoul, on Oct. 27. [BANK OF KOREA]

The central bank reiterated its position that only strictly regulated banks should lead stablecoin issuance.

“If banks take the lead, regulators can closely coordinate the issuance scale and maintain stability, allowing this new form of currency to take root within the formal financial system,” said Kim Chul, head of the BOK’s Payment & Settlement Systems Department.

The central bank also called for a joint policy council among monetary, foreign exchange and financial authorities, alongside the parallel rollout of the BOK’s Project Hangang, a pilot program for bank-issued deposit tokens built on a central bank-operated platform.

“The Korean crypto market is enormous,” said Lee Byung-mok, director general of the BOK’s Payment & Settlement Systems Department. “Stablecoin legislation is moving quickly, and we hope this report serves as a key reference for those discussions.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY PARK YU-MI [[email protected]]