Bank of Korea Sounds Alarm: Local Stablecoins Could Tighten Dollar’s Grip on Economy

South Korea's central bank drops a crypto bombshell—pegging local stablecoins to USD might just hand more power to the Fed.

Dollar dominance 2.0?

The BOK's warning comes as DeFi projects increasingly favor USD-backed stablecoins over sovereign alternatives. Another win for King Dollar—because clearly the global reserve currency needed more help.

Meanwhile, traditional banks quietly update their 'how to stay relevant' playbooks.

Rhee says he is not against the issuance of a won-backed stablecoin 

Rhee pointed out that he is not opposed to the issuance of a Korean won-pegged stablecoin and, in fact, saw a need for it. However, he added that the impact of such a stablecoin on the monetary system WOULD depend on the form of issuance and the type of assets backing it.

Governor Rhee also pointed out that allowing non-banking institutions to issue won-based stablecoins freely could seriously weaken monetary policy.

An official from a local commercial lender also said stablecoins are not yet lucrative for banks. But if the won-based stablecoin materialized, banks would, of course, want to play a central role.

The proposed stablecoin seeks to reduce reliance on dollar-backed stablecoins, which the Bank of Korea said reached $41.6 billion (56.95 trillion won) on Korea’s five major cryptocurrency exchanges–Upbit, Bithumb, Korbit, Coinone, and Gopax–in Q1 2025, marking a threefold increase from 17.06 trillion won in the third quarter of 2024.

An official from the BOK also said the issuance of stablecoins could increase the money supply and potentially affect the status of the won. The official reportedly said it was necessary to approach the matter cautiously, adding that another potential loophole lay in cross-border transactions, possibly threatening the country’s financial stability.

South Korea pushes stablecoin bill under new president

South Korea’s new president, Lee Jae-myung, is moving fast on campaign pledges as the ruling Democratic Party proposed the Digital Asset Basic Act, which was announced on Tuesday to issue local stablecoins. The bill aims to improve transparency and boost competition within the crypto sector. The MOVE also came as stablecoin trading in South Korea surged, reaching 57 trillion won in Q1 alone.

Under the proposed law, South Korean firms could issue stablecoins if they held at least 500 million won in equity capital. These issuers must maintain sufficient reserves and gain approval from the Financial Services Commission (FSC). However, Governor Rhee voiced opposition, warning that private stablecoins could undermine the central bank’s control over monetary policy. 

President Lee’s push for broader crypto integration also included proposals for the national pension fund to invest in Bitcoin and permitting Bitcoin ETFs. Governor Rhee said the central bank would work with the Ministry of Economy and Finance and the Financial Services Commission to establish appropriate measures as soon as possible.

“We would need to consider the broader implications for bank profitability and structural changes if payment and settlement functions — traditionally handled by banks — are expanded to the non-banking sector.”

–Rhee Chang-yong, Governor of the Bank of Korea (BoK)

The central bank argued that it should lead in regulating a local currency stablecoin. Additionally, establishing a committee to guide crypto policy will ensure the regulatory framework is comprehensive and practical. It will promote the use of digital assets while protecting consumers and ensuring the financial system’s stability.

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