"It's Not a Reserve Currency... Can a Won-Based Coin Succeed?" Doubts Arise Everywhere [Why&Next]

Interest in Won-Based Stablecoins Surges After Launch of Lee Jaemyung Administration
Caution Urged Amid Possibility of Coin Run
Inherent Limitations Highlighted as Non-Reserve Currency

Since the inauguration of the Lee Jaemyung administration, social interest in won-based stablecoins has grown significantly. At the same time, doubts have been raised in various quarters about whether a coin using Korea's currency, which is not a reserve currency, can truly succeed. Experts have assessed that even if a won-based stablecoin is introduced, its business expansion will be limited due to several factors: the low status of the won in international settlement markets, Korea's already well-established domestic payment environment, and financial authorities' regulations.

Interest in won-based stablecoins has surged since the launch of the new administration

According to the financial sector on the 27th, global investment bank HSBC issued a report the previous day, analyzing that the future of won-based stablecoins is not particularly bright.

A stablecoin is a virtual asset that seeks value stability by being pegged to a specific asset, such as the US dollar. Tether (USDT) and USD Coin, both pegged one-to-one to the dollar, are representative examples. Recently, the use of stablecoins has expanded beyond the virtual asset market; they are now used as a store of value and are being integrated with existing payment systems for everyday transactions. Interest in won-based stablecoins has grown domestically after President Lee Jaemyung pledged their introduction as a campaign promise. Related legislation has also been proposed in the National Assembly.

Despite the growing interest in stablecoins both domestically and internationally, HSBC pointed out that the scalability of won-based stablecoins is clearly limited. In Korea, the already high credit card usage rate suggests there is little room for further penetration, and since the won is not a reserve currency, the likelihood of overseas usage is also low.

The possibility of tighter regulations by financial authorities is another factor clouding the future of won-based stablecoins. Financial authorities such as the Bank of Korea and the Financial Services Commission believe that the initial issuance rights for won-based stablecoins should be granted primarily to reputable financial institutions such as banks. If, as some suggest, anyone were allowed to issue stablecoins, unforeseen shocks like a global financial crisis could severely impact the financial market.

In the worst case, a coin run could occur

The Bank of Korea has warned that, in the worst case, a "coin run"?a massive withdrawal of coins similar to a bank run?could take place. In its Financial Stability Report released on the 24th, the Bank of Korea pointed out that if trust in the value stability and reserve assets of stablecoins is undermined, incidents of "depegging" (where a stablecoin's value diverges from its pegged asset) and large-scale redemption demands could lead to a coin run. This could spread to systemic financial risks through shocks to the short-term funding market and increased bank liquidity risk.

The Bank of Korea also noted that stablecoins, which operate on blockchain technology, carry various payment and operational risks, including the possibility of technical errors and criminal misuse, due to the lack of sufficient related systems and infrastructure. In non-reserve currency countries, widespread use of foreign currency-based stablecoins could also increase foreign exchange-related risks, such as heightened exchange rate volatility and capital flows. A Bank of Korea official stated, "The spread of stablecoins could pose potential risks to financial stability and the overall economy," and emphasized that "the Bank of Korea, along with the government and financial authorities, must conduct thorough and multifaceted reviews regarding the introduction of stablecoins."

Kim Youngsik, professor of economics at Seoul National University, expressed concern, saying, "Stablecoins are emerging as a new form of private digital currency, impacting the monetary system," and "especially, stablecoins issued by fintech companies, as a digital bearer certificate, could undermine the singularity of privately issued currencies."

The Bank for International Settlements (BIS) has also issued a warning regarding the global spread of stablecoins. In a draft of its annual report scheduled for release on the 29th, the BIS expressed concerns about the potential for stablecoins to weaken monetary sovereignty, issues of transparency, and the risk of capital outflows in emerging markets. The BIS argued, "Stablecoins do not fulfill the role of a stable currency, and the lack of regulation could pose risks to financial stability and monetary sovereignty." To prevent instability caused by stablecoins, the BIS recommended that central banks introduce a "unified ledger"?a tokenized system integrating central bank reserves, commercial bank deposits, and government bonds.

Despite these concerns, the related industry remains optimistic about the potential introduction of won-based stablecoins. Banks have already formed consortia and established joint ventures to develop business models for the joint issuance of won-based stablecoins. Trademark applications are also being filed, particularly in the fintech (finance + technology) and gaming industries, to proactively respond to the won-based stablecoin market. A financial sector official stated, "The introduction of won-based stablecoins is a matter of timing, not feasibility, and the likelihood is high. However, the real issue is that the stablecoin business could fail to move in a direction beneficial to the national economy and instead bring chaos to the financial market, so thorough countermeasures must be prepared."