Central Bank Chiefs of Major Countries Call for Stablecoin Regulation... Lee Changyong Warns of Capital Outflows and Regulatory Evasion

At the ECB Central Bank Forum Policy Discussion
"Not convinced that blockchain technology can prevent side effects"
Issues such as allowing non-bank institutions to issue stablecoins must be addressed together with the government

Lee Changyong, Governor of the Bank of Korea, expressed concerns about the introduction of a won-based stablecoin during a meeting with the heads of major central banks. He emphasized that, considering the potential for capital outflows and the possibility of circumventing capital regulations, it is necessary for the government to engage in sufficient discussions before any introduction. Jerome Powell, Chair of the U.S. Federal Reserve, and Christine Lagarde, President of the European Central Bank, also agreed with Governor Lee, stressing the need for a regulatory framework to protect money as a public good.

Lee Changyong, Governor of the Bank of Korea, is speaking as a panelist at the policy discussion session of the ECB Central Bank Forum held in Sintra, Portugal, on the 1st (local time). Screenshot from ECB YouTube live broadcast

Governor Lee, participating as a panelist in the 'Policy Discussion' session of the ECB Central Bank Forum (Sintra Forum) held in Sintra, Portugal, on the 1st (local time), emphasized, "The biggest concern is that if unregulated won stablecoins are permitted, this could ultimately stimulate demand for exchanging them into dollar stablecoins, which may lead to capital outflows and a weakening of capital flow management regulations." He added, "Some argue that blockchain technology can sufficiently identify illegal transactions and perform customer identification (KYC), but I am not convinced of this." He also pointed out, "In addition, issues such as compliance and potential conflicts with banks must also be resolved before introduction."

Governor Lee stressed that any issues related to allowing non-bank institutions to issue stablecoins must be thoroughly reviewed with the government before any introduction. He said, "Since the passage of the 'Genius Act' in the United States, many fintech (finance + technology) companies and stablecoin supporters have been requesting the Korean government to allow non-bank institutions to issue won stablecoins." He continued, "We have been experimenting with tokenized deposits within a permitted network together with private commercial banks. However, whether to allow non-bank institutions to issue won stablecoins in the public sector is an issue that goes beyond the authority of the Bank of Korea, so consultation with government ministries is necessary."

(From left) Andrew Bailey, Governor of the Bank of England; Lee Changyong, Governor of the Bank of Korea; Jerome Powell, Chair of the U.S. Federal Reserve; Christine Lagarde, President of the European Central Bank; and Kazuo Ueda, Governor of the Bank of Japan, are speaking as panelists at the policy discussion session of the ECB Central Bank Forum held on the 1st (local time) in Sintra, Portugal. Screenshot from ECB YouTube live broadcast

The other panelists also shared Governor Lee's views. Chair Powell emphasized, "As long as stablecoins exist, a regulatory framework is absolutely necessary." President Lagarde pointed out, "We are currently confused by the mixing of the concepts of money, means of payment, and payment infrastructure. If these boundaries collapse, we will lose our ability to implement monetary policy, and the nation's monetary sovereignty could be threatened." She added, "Money is a public good, and central banks have the responsibility to protect this public good," and emphasized, "A clear policy stance must be established."

The Sintra Forum is a high-level policy dialogue platform hosted annually by the ECB in Sintra, Portugal, since 2014. Central bank governors from major countries, academics, and market experts participate to share and discuss global financial and economic issues. The policy discussion is the core session of the Sintra Forum, and this year, Governor Lee, Chair Powell, President Lagarde, Andrew Bailey, Governor of the Bank of England, and Kazuo Ueda, Governor of the Bank of Japan, participated as panelists.