South Korean banks are facing potential deposit outflows as the popularity of stablecoins as a global payment method increases, according to a report released in December by the Korea Economic Daily. Stablecoins have risen to become the second most used global payment method, trailing only Automated Clearing House (ACH) systems, posing a challenge to traditional banking institutions.
The Bank of Korea (BOK) has identified four potential risks associated with the expanding use of stablecoins: “coin runs” or large-scale redemption events, settlement and operational risks, impacts on foreign exchange transactions and capital flows, and potential constraints on monetary policy effectiveness. The BOK’s 2025 Financial Stability Report highlighted concerns that issuers might aggressively expand stablecoin issuance to maximize profits, or that users may favor stablecoins over bank deposits, weakening the credit creation function of banks.
Despite these concerns, some analysts believe fears of significant deposit flight triggered by stablecoins are overblown. Stephen Gandel, as reported by News.Bitcoin.com, argues that stablecoin-linked deposit outflows are unlikely to threaten the banking system, suggesting that estimates of potential outflows are excessive.
The BOK has proposed a solution centered around bank-issued stablecoins. According to a report by the Yonhap News Agency, the central bank suggests that banks should either directly issue stablecoins or collaborate through a consortium led by banking institutions. This approach, the BOK argues, would allow many of the associated risks to be managed within the existing regulatory framework. The BOK also proposes integrating these bank-issued stablecoins with its own digital currency system, currently being tested as “deposit tokens.”
The potential for disruption extends to bank revenue streams. The Herald Corporation reported that banks are likely to experience a weakening of their deposit base, leading to reduced interest and fee income. The BOK’s report also points to risks related to blockchain technology itself, including smart contract errors, system failures, and the potential for fraud and theft, which could escalate if stablecoins become widely adopted as a general means of payment.
The BOK’s concerns regarding foreign exchange and capital flows center on the increased use of foreign currency-denominated stablecoins, which could lead to volatility in exchange rates and expanded capital outflows. The central bank has not yet announced any specific regulatory changes in response to these developments, but continues to monitor the situation closely.
