Bank of Korea Rethinks Digital Currency Plans
Concerns over unregulated stablecoins prompt project review.
The Bank of Korea is reassessing its central bank digital currency (CBDC) plans amid worries that unregulated, won-based stablecoins could lead to capital flight. This shift follows concerns raised by the bank’s governor regarding the potential for these cryptocurrencies to undermine monetary policy.
Governor’s Concerns
Lee Chang-yong, president of the Bank of Korea, voiced his concerns at the European Central Bank (ECB) forum in Sintra, Portugal. Lee stated that “If you allow unregulated won-stable coins, the exchange to the dollar -based stable coin will accelerate, which can weaken the regulation of capital outlets.”
He fears this could facilitate the movement of funds out of the country.
In essence, the governor spotlighted the risk of untethered stablecoins enabling Koreans to convert local currency into dollar-pegged crypto assets beyond the purview of Korean financial regulations. This concern arises from the inherent nature of blockchain technology, enabling users to easily convert such stablecoins.
CBDC Project on Hold
The Bank of Korea had planned a pilot program, dubbed the ‘Han River Project’, for the second half of the year. However, these plans have been temporarily suspended. This decision came after discussions with banks involved in the project, during which the lack of a clear commercialization strategy for the CBDC was a point of contention.
According to a recent report by the Bank for International Settlements, 93% of central banks are exploring CBDCs, but only a handful have launched them (BIS Annual Economic Report 2023).
Stablecoin Debate
Lee addressed the increasing demand from non-bank financial institutions to issue stablecoins. He also expressed skepticism regarding claims that blockchain technology inherently ensures customer confirmation and detects abnormal transactions. Lee emphasized the need to “restructure our plans when new demands emerge.”
Monetary Sovereignty
Lee clarified that his opposition lies with unregulated stablecoins, not with CBDCs that maintain a guaranteed value. He cautioned that failing to issue a regulated domestic stablecoin could lead to a loss of monetary sovereignty due to the influence of dollar-backed stablecoins.
