KCMI Issue Briefing on "Stablecoins and Short-Term Government Bonds" Held
"Absence of Short-Term Government Bonds in Korea... Limits on Securing Reserve Assets for Stablecoins"
An analysis has suggested that improvements to the short-term government bond issuance system are necessary for the introduction of a won-denominated stablecoin. In Korea, the absence of short-term government bonds could limit the supply of short-term government securities, which are commonly used as reserve assets for major stablecoins.
Kim Pilkyu, Senior Research Fellow at the Korea Capital Market Institute (KCMI), stated at the KCMI Issue Briefing "Stablecoins and Short-Term Government Bonds" held at the Financial Investment Center Building in Yeouido, Seoul on the 11th, "As the United States enacts the GENIUS Act and the issuance of dollar stablecoins surges, discussions about introducing a won-denominated stablecoin are also becoming active domestically. However, the lack of short-term government bonds could become an obstacle to securing reserve assets," he said.
Reserve assets, which are central to stablecoins, guarantee price stability and the ability to respond to redemptions. In the United States and the European Union (EU), relevant laws require highly liquid, risk-free assets such as short-term government bonds to be used as reserve assets. Major stablecoins such as Tether (USDT) and USD Coin (USDC) also mainly hold short-term government bonds.
In Korea, due to the National Finance Act's requirement for National Assembly approval based on the total issuance amount, short-term government bonds are not issued.
Furthermore, ultra-short-term matured government bonds account for only 1.8% of the total, and fiscal securities must be fully redeemed by year-end, making them unsuitable as reserve assets. Monetary stabilization bonds are also being issued less frequently, and the proportion of short-term bonds is declining, making sufficient supply difficult and presenting liquidity constraints.
Kim pointed out, "Although Korea has a developed government bond market, it is the only country that does not issue short-term government bonds with maturities of less than one year. While matured government bonds, fiscal securities, and monetary stabilization bonds could be alternatives, there are limitations in terms of supply scale and liquidity."
He also noted that short-term government bonds are expected to play a key role in fiscal funding and as a short-term investment vehicle.
Kim explained, "Short-term government bonds contribute to the government's flexible funding, and government bond investors have different motivations depending on the maturity. While medium- and long-term government bonds are used as materials for risk-free investment products for various investors, short-term government bonds are mainly used as the underlying assets for short-term financial products or for managing temporary surplus funds."
However, since issuing short-term government bonds could lead to an increase in refinancing issuance and make it appear as though national debt has expanded, he suggested that the National Finance Act should be revised to change the bond issuance limit standard from 'total issuance amount' to either 'net increase' or 'outstanding balance.'
Regarding product structure design, he proposed initially introducing one-year maturity short-term government bonds and, in the long term, expanding to various maturities such as three and six months. He also emphasized the adoption of a discount bond format to facilitate the introduction of spot rates and the refinement of the yield curve, as well as the need to establish an issuance strategy that reflects the demand of major investor groups.
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