With the escalating progression of stablecoin legislation in the United States, South Korea has also embraced the concept of currency-pegged cryptocurrencies. The recently elected President Lee Jae Myung of South Korea has pledged to allow the issuance of Korean won-pegged stablecoins, which is currently prohibited, and to foster a local stablecoin market.
Post-election, Min Byeong-deok, a left-wing lawmaker and the director of digital assets during Lee’s campaign, proposed a law that would establish a licensing system and criteria for potential stablecoin issuers. Min explained to The Block that the use of dollar stablecoins directly causes capital outflows. However, facilitating overseas transactions with won-based stablecoins could minimize the conversion of domestic capital into foreign currencies.
The new administration aims to fortify the nation’s independence from foreign currency-based assets and expand the digital finance realm based on the Korean won. This move is anticipated to bring several economic advantages, including reduced trade costs, diversified foreign exchange risks, and increased global investment into the local economy.
Min explained that the objective is to foster an environment where private entities can issue won-pegged stablecoins and industries such as e-commerce platforms, game developers, and content creators can actively utilize these tokens.
Despite these potential benefits, some industry experts have raised concerns about the actual effectiveness of this initiative. Brian Hoonjong Paik, co-founder and CEO of bitcoin investment services firm SmashFi, suggested that issuing a won-backed stablecoin might not spur international demand and could even accelerate capital flight. The U.S. dollar dominates global foreign exchange reserves, while the Korean won falls into the category of nontraditional currencies.
On the other hand, Min contends that there is “real demand” for won-pegged stablecoins. He cited the growth of Korean services globally and argued that a won-based payment system could particularly construct a digital economic infrastructure for foreign users of Korean services or settlements with foreign merchants.
Min’s proposed legislation, the Digital Asset Basic Act, aims to reestablish South Korea’s presence in the global digital economy. This comes after a period of regulatory caution due to the fall of the TerraUSD stablecoin project, a South Korea-originated initiative. However, while South Korea is taking a step forward in the crypto world, some critics believe that the government should focus more on decentralization, self-custody, and monetary freedom, which are the core elements of blockchain technology.
