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Korea Herald
a day ago
- Business
- Korea Herald
Won-based stablecoin plans gain ground under new president
Concerns remain over risks to monetary sovereignty, financial stability Stablecoins have become a major focus in financial circles, capturing the attention of commercial banks, fintech firms, central banks and lawmakers alike, as momentum builds for a version pegged to the Korean won. A stablecoin is a type of crypto asset linked to the value of another asset — typically a fiat currency like the US dollar or a commodity such as gold. Unlike volatile cryptocurrencies like Bitcoin, stablecoins aim to maintain a steady valuation, often by being pegged one-to-one and backed by equivalent reserves. With President Lee Jae-myung's new administration pledging to create a won-based stablecoin market, regulatory efforts are accelerating to bring digital assets into the traditional financial framework. Still, there has been pushback. The Bank of Korea and other institutions have flagged concerns that a domestic stablecoin could erode trust in sovereign currency and introduce new risks to financial stability. President Lee's promise of Korean won-based stablecoins reflects concern that rising demand for dollar-backed versions could lead to capital outflows. When Korean investors buy dollar-based stablecoins, such as tether or circle, they are betting big on the greenback, thereby strengthening the dollar's hegemony in the global digital asset market and weakening the won's status. According to the Bank of Korea, the total trading volume of dollar-pegged stablecoins on Korea's five major cryptocurrency exchanges -- Upbit, Bithumb, Korbit, Coinone and Gopax -- reached 56.95 trillion won ($41.6 billion) in the first quarter of this year, marking a threefold increase from 17.06 trillion won in the third quarter of 2024. The appointment of Kim Yong-beom, former first vice finance minister and former head of the crypto think tank Hashed Open Research, as the president's top economic adviser has fueled speculation that Korea's crypto asset industry could soon gain policy traction. During his tenure at the think tank, Kim publicly asserted that 'a regulated Korean won-backed stablecoin could be controlled more precisely than fiat currency.' On Tuesday, Rep. Min Byoung-dug from the Democratic Party of Korea introduced the Digital Asset Framework Act, proposing to allow corporations, including non-banking entities, with a minimum capital of 500 million won ($360,000) to issue won-backed stablecoins. Riding this wave of optimism, shares of Kakao Pay, a fintech affiliate of the country's tech giant Kakao, have nearly doubled in just a week, buoyed by anticipation that it could play a major role in the won-backed stablecoin market. Local banks are rushing to lay the groundwork for stablecoins, competitively launching task forces and seeking tech partners, signaling a major shift in the nation's financial landscape. 'At this point, stablecoins are not yet a lucrative area for banks. But if the won-based stablecoin materializes, banks would, of course, want to play a pivotal role,' an official from a local commercial lender said. A threat to the BOK? Like its dollar-backed counterparts, which are backed by US government debt and money market funds, a won-based stablecoin would be guaranteed by short-term, low-risk Korean financial instruments if it were to follow the same model. While talk of won-pegged stablecoins has gained traction, the BOK remains wary as the new instrument could undermine the status of the country's fiat currency. "Allowing a non-banking institution to freely issue won-based stablecoins could seriously weaken the effects of monetary policy,' said BOK Gov. Rhee Chang-yong at a press conference held in May. If won-pegged stablecoins are established as a major means of payment in the domestic economy, this would undermine the central bank's ability to control monetary flows. "The issuance of stablecoins could increase the money supply and potentially affect the status of the won. It is necessary to approach the matter with caution,' an official from the BOK said. Another potential loophole lies in cross-border transactions, possibly threatening the country's financial stability. Individuals could convert won-based stablecoins into dollar-pegged stablecoins and transfer funds overseas, bypassing traditional financial channels that are subject to regulatory oversight for cross-border capital flows. While similar concerns exist with bitcoin, its transactions are more closely monitored under local regulatory frameworks, such as the "travel rule," which requires exchanges to verify senders' identities for international transfers over 1 million won.
Korea Herald
11-02-2025
- Business
- Korea Herald
Trump's tariff threats drive up ‘kimchi premium' in Korea's crypto market
Korean investors flock to virtual assets to detour trade war US President Donald Trump's latest threats to impose tariffs on key trading partners have fueled the 'kimchi premium,' the price gap between cryptocurrency values in South Korea and international markets. Earlier this month, when Trump announced plans to impose 10 percent tariffs on China and broad 25 percent tariffs on Canada and Mexico — which he later backtracked on — the global price of bitcoin plunged. The market reacted to expectations that higher tariffs would trigger inflation, prompting central banks to tighten monetary policies. Despite this global decline, bitcoin remained in high demand in South Korea. On Feb. 3, while bitcoin fluctuated around $97,000 (approximately 141 million won) on US-based exchange Binance, it was trading at around 150 million won ($103,149) on Korean exchanges, pushing the price gap to nearly 10 percent — the highest in nearly 10 months. Though the gap narrowed to 7 percent in the following days, suggesting a time lag in investor reactions between the US and Korea due to time zone differences, industry officials believe the discrepancy may reflect Korean investors' efforts to hedge against trade war risks using cryptocurrency. In recent months, the benchmark Kospi index has suffered sharp declines whenever Trump revives tariff threats, as export-dependent Korea would be likely to suffer from a heightened trade war. The Korean won has also weakened against the US dollar, further signaling concerns over an economic slowdown. "With deposit interest rates falling and the local stock market slowing, some of the floating capital appears to have shifted into the crypto market," said Kim Min-seung, head of research at Korbit, one of Korea's top five cryptocurrency exchanges. "We cannot rule out the possibility that cryptocurrency is gaining a stronger presence following Trump's return to the White House," he added. Though the price gap eventually moderated to around 4 percent as of Tuesday, industry experts remain cautious, warning that the discrepancy is still at an alarming level. "Considering that the premium remained around 1-2 percent in recent months — and even inverted to negative at times — a 4 percent gap cannot be overlooked," an official from a local exchange noted. The persistent price discrepancy in Korea's crypto market is largely attributed to high demand in a closed market environment. On local cryptocurrency exchanges, only retail investors are allowed to trade, and derivatives, which aid in price discovery, remain off-limits. Despite these regulatory barriers, Korean investors continue to show strong interest in cryptocurrency. According to Financial Supervisory Service data released Tuesday, trading deposits at Korea's top five crypto exchanges stood at 10.65 trillion won as of last month — nearly doubling from 5.21 trillion won in January 2024. "Given cryptocurrency's relatively short history, it's difficult to define an exact threshold for when a price gap becomes 'concerning,'" Kim said. "However, the key issue is that this price distortion stems from Korea's closed market environment, which hinders efficient price discovery." As Trump's trade policies continue to rattle global markets, Korea's crypto trading premium could remain a reflection of broader economic uncertainties — and an ongoing challenge for investors navigating a restricted market.
