Wonhwa Stablecoin Faces Regulatory Hurdles and Market Skepticism

The Future of Digital Currency in South Korea Uncertain

South Korea is grappling with the implications of introducing its own stablecoin, a digital currency pegged to the won. The initiative, intended to preserve monetary sovereignty, is encountering regulatory resistance and market doubts about its viability in a landscape dominated by dollar-based stablecoins.

Central Bank’s Concerns

The Bank of Korea is apprehensive about private stablecoins. The primary worry is that they could compromise the central bank’s exclusive right to issue currency, as stipulated in Article 47 of Korean law, which has been in place since the 1950s. The bank fears a proliferation of stablecoins could diminish its control over the currency supply.

“If the stable coin is rapidly spreading, the currency will increase outside the central bank control range.”

—Han Chang-yong, Bank of Korea

The introduction of a central bank digital currency (CBDC) is considered a more viable alternative by the central bank. A CBDC is seen as a safer option, as the central bank and government can more easily monitor and control its flow. The International Monetary Fund (IMF) has also weighed in, warning that stablecoins could pose risks to financial stability and monetary sovereignty.

Market Dynamics and Challenges

Proponents of a won-based stablecoin argue it could shield monetary sovereignty. However, the dominance of dollar-backed stablecoins like USDT and USDC poses a significant challenge. The vast majority of stablecoin market capitalization is in dollars. This could make it difficult for a won-based stablecoin to gain traction.

Yoo Sang-dae, a figure in the financial sector, stated, I don’t understand the claim that I publish a won -stable coin and suppress the use of dollar stable coins. The potential for coin runs, where investors rush to convert their stablecoins, also presents a significant risk. The collapse of trust in the underlying assets could trigger large losses.

A recent report indicates that the global stablecoin market experienced a significant decline in the first quarter of 2024. This decline underscores the volatility and challenges facing the digital currency market. (Statista 2024)

International Trade and Data Concerns

There are also worries about the impact on international trade statistics. As payments shift from dollars to stablecoins, the clarity of trade data could be affected. Although the IMF allows the use of stablecoins in international investment tables, the rapid change may outpace system upgrades. The shift could significantly affect foreign exchange and demand, even without direct dollar involvement in Korean transactions.

The debate over the original stablecoin reflects a complex interplay of regulatory concerns, market dynamics, and international trade implications. The future trajectory of digital currency in South Korea hangs in the balance.