Regulatory Risks of the Digital Won: The Warning from the Governor of the Bank of Korea

The Governor of the Bank of Korea, Lee Chang-yong, has voiced concerns about the potential dangers of creating a stablecoin backed by the Korean won. His statements highlight a broader concern in global financial circles: how digital stablecoins could become tools for evading national regulatory frameworks.

Governor’s Concerns About Capital Control Evasion

The governor emphasized that a stablecoin linked to the won could facilitate capital control evasion, a particularly sensitive issue for economies like South Korea. While acknowledging that dollar-pegged stablecoins have gained popularity due to lower transaction costs, Lee Chang-yong warned that this model could be problematically replicated with the local currency.

The ease with which users could transfer digital assets without going through traditional banking intermediaries poses a systemic risk that regulators cannot ignore.

Volatility as a Catalyst for Speculation

A critical aspect of the governor’s warning centers on the risk of exchange rate volatility. Unlike dollar-denominated stablecoins, a won stablecoin would be exposed to fluctuations in international currency markets, which could trigger waves of speculation.

This instability would pose an additional challenge for regulators, who would need to monitor not only the circulation of the digital currency but also its impact on traditional currency markets.

Regulatory Challenges in the Era of Decentralized Stablecoins

Lee Chang-yong also highlighted the unprecedented challenges faced by the traditional banking sector amid the growing issuance of stablecoins by unregulated entities. The proliferation of these digital currencies by actors outside the conventional banking system questions the ability of regulatory agencies to maintain financial stability.

The Governor of the Bank of Korea has made his position clear: before allowing cryptographic innovations, robust regulatory frameworks must be established to protect both investors and the integrity of the national financial markets.