Lee Changyong: "Urgent Need for Measures Against Regulatory Evasion by Currency-Based Stablecoins"

Dollar-based Stablecoins Like USDT Already Traded in Korea
"US Dollar-denominated Stablecoins Should Be Viewed from the Perspective of the Foreign Exchange Transactions Act"

Lee Changyong, Governor of the Bank of Korea, stated on the 5th (local time) in Milan, Italy, where he was attending the Asian Development Bank (ADB) Annual Meeting, that "it is urgent to establish measures for currency-based stablecoins, which have a high potential to circumvent regulations," during a meeting with the domestic press corps.

Lee Changyong, Governor of the Bank of Korea, is speaking with the domestic press corps in Milan, Italy, on the 5th (local time) during his visit to attend the Asian Development Bank (ADB) Annual Meeting. Bank of Korea

Governor Lee said, "Stablecoins such as USDT, which are backed by the US dollar, are already being traded in our country through exchanges," and added, "There is now a significant possibility that these could be used to bypass our country's capital regulations and foreign exchange market regulations. Therefore, it is urgent to establish relevant regulations. We are having many discussions with the International Finance Bureau of the Ministry of Economy and Finance."

He explained that the Bank of Korea's main interest regarding stablecoins lies in those backed by the Korean won or the US dollar, as they could serve as substitutes for currency. Governor Lee stated, "Global stablecoins denominated in US dollars should be considered from the perspective of the Foreign Exchange Transactions Act," and added, "As for local stablecoins denominated in Korean won, the Bank of Korea must first examine whether or not to allow them." He pointed out that allowing stablecoins denominated in Korean won essentially means permitting currency substitutes, and allowing non-bank financial institutions to issue them would be tantamount to allowing such institutions to engage in narrow banking (a type of limited banking that only provides payment functions without lending).

He further explained that in the Bank of Korea's ongoing digital currency experiment, 'Project Hangang,' the 'deposit tokens' issued by banks are, in fact, stablecoins issued by banks based on the Korean won within a blockchain created by the Bank of Korea. Governor Lee said, "What we are currently testing is the initial issuance of won-based stablecoins," and added, "Based on the results, we will gradually consider whether to allow banks to issue stablecoins outside the blockchain created by the Bank of Korea, and whether to allow non-bank institutions to issue them as well."

Meanwhile, he expressed discomfort regarding some criticisms of Project Hangang, which is currently in its first testing phase for the general public, such as "there is nowhere to use it," "there is little transaction volume," and "it takes time to open the payment window." Governor Lee explained, "Naturally, the transaction volume is low. It cannot be used at all stores, only at some. Since we do not know how it will be adopted, it is difficult to simply ask banks to open a large number of accounts."

He continued, "Since this is a pilot, the IT systems are separated and limited to a dedicated system, so it takes a lot of time to open the payment window. Once it becomes more widespread, anyone with a bank account will be able to open a deposit token account with just one click."

He added, "What we want to experiment with is whether vouchers can be used, whether programs can be incorporated, and whether transactions can be made using QR codes as a substitute for credit cards. We are not interested in just seeing how many people transact per day. Even if the volume is small among 100,000 participants, we want to see if it works in practice, and if it proves useful, we plan to scale it up in the future."

Governor Lee also commented, "Some bank staff ask why we are pushing so hard when transaction volumes are not very high, but from the banks' perspective, they should be thinking about how to grow their business through this. We are doing this with an eye on the future."