"KRW Stablecoin Economic Impact" Report
Concerns Over Increased Exchange Rate Volatility in Cases of De-Pegging or Coin Runs
Proposal for Reserve Asset and Redemption Mechanism Design, Central Bank Settlement Structure
Concerns have been raised that the use of dollar-denominated stablecoins alongside domestic currency could weaken monetary sovereignty and policy autonomy. As the scale of stablecoins grows, the likelihood that the transmission channels of monetary policy will be disrupted also increases. Therefore, there is a need for proactive monitoring and institutional responses.
On March 4, TOSS Insight, the financial management research institute, stated this in its report titled "Economic Impact Analysis and Policy Recommendations on the Introduction of KRW Stablecoins." This report, which is the third and final installment in the stablecoin trilogy series, provides a comprehensive analysis of the benefits and costs that the institutionalization of KRW stablecoins could have on the Korean economy, from the perspectives of macroeconomics, international finance, and payment systems. The research was conducted by Kihoon Hong, head of TOSS Insight, along with Professor Hyunsoo Joo of the Korea Institute of Finance, Professors Sunyoung Park and Junghwan Hyun of Dongguk University, and others.
The report defines stablecoins not merely as digital means of payment, but as a "financial institution" directly linked to monetary policy transmission channels, foreign exchange and capital flows, and payment infrastructure. Rather than focusing on technological superiority or predicting the success of specific industry models, the report centers on how stablecoins generate costs and benefits across the economy as a whole.
The report analyzes, using a small open economy model, how the transmission channel of monetary policy to the real economy could change if stablecoins become more widely used as a medium of exchange. It points out that when dollar-denominated stablecoins are used alongside domestic currency, there exists a mechanism by which monetary policy can function differently than intended, thereby weakening monetary sovereignty and policy autonomy. As such, the report suggests that proactive monitoring and institutional preparedness are necessary, as it is difficult to rule out the possibility that the monetary policy transmission channel could be disrupted as the scale of stablecoins grows.
The report also suggests that abnormal situations such as coin runs could increase exchange rate volatility. While the 1:1 peg structure may limit the impact on exchange rates under normal conditions, the report notes that in the event of de-pegging or large-scale redemption demands (coin runs), exchange rate volatility and financial uncertainty could be amplified.
Furthermore, the report proposes risk management measures such as establishing or strengthening reporting thresholds, applying the travel rule to personal wallets, and imposing anti-money laundering (AML) obligations on stablecoin issuers. While KRW stablecoins have the potential to narrow the so-called "Kimchi Premium"-the price gap between domestic and overseas virtual asset markets-through real-time arbitrage channels, the report warns that new risks could arise, such as the expansion of digital shadow foreign exchange markets or the circumvention of capital controls.
The report also emphasizes the importance of ensuring parity with legal tender (face value exchangeability), designing reserve asset and redemption mechanisms, and improving issuance and distribution structures. From the perspective of the payment and settlement system, it explains that the "singleness of money" must be ensured for stablecoins to function as the "same money" as existing currency. To this end, the report proposes the establishment of a unified platform for exchanging stablecoins and deposit money, and the creation of a structure in which final settlement is made in central bank money, in order to minimize fragmentation within the monetary system.
TOSS Insight emphasized that discussions on KRW stablecoins need to move beyond the dichotomy of "permission versus prohibition" and instead focus on issues of "design and regulation."
Kihoon Hong, head of TOSS Insight, said, "Discussions on stablecoins should be reestablished from the perspective of macroeconomic balance and the stability of the monetary system, rather than stopping at industrial viewpoints or technological efficiency assessments. This research focused on theoretically and institutionally examining how KRW stablecoins create economic costs and benefits through various channels."
He added, "We hope this report will serve as a useful reference for making the design and policy decisions regarding KRW stablecoin systems more evidence-based."
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