Seoul: Stablecoins should be issued through conventional banks under state regulation given their various risk factors, the central bank said Monday, as the government eyes introducing won-pegged stablecoins to modernize the financial system and curb capital outflows.

According to Yonhap News Agency, the Bank of Korea (BOK) emphasized in a report that stablecoins could unlock new possibilities for the Korean economy but also pose risks of instability. The report highlighted the necessity of institutional safeguards to ensure trust and support innovation.

Stablecoins, which are cryptocurrencies pegged to another asset like the U.S. dollar to maintain a stable value, are seeing increased global adoption. President Lee Jae Myung has committed to enabling local issuance of stablecoins. In June, the Democratic Party proposed the Digital Asset Basic Act, which would allow domestic firms to issue won-denominated stablecoins with a minimum equity capital of 500 million won (US$349,000) and sufficient reserves for redemption.

Bank of Korea Governor Rhee Chang-yong has raised concerns about non-bank issuance of stablecoins affecting monetary policy, though he does not oppose their issuance in principle. The report pointed out that the promise of "1 coin equals 1 won" is a private agreement without central bank guarantees, leaving stablecoin holders unprotected under current laws if the issuer fails the redemption promise.

The BOK also noted that stablecoins might bypass foreign exchange and capital regulations, potentially undermining monetary policy effectiveness. Issuance of won-denominated stablecoins could lead to short-term interest rate volatility, as reserve asset purchases by issuers might pressure market rates downward.

The BOK suggested that if banks or bank-led consortia become the primary issuers of stablecoins, many risks could be managed within the existing regulatory framework. Non-banking entities, such as IT firms, could also engage in bank-centered consortia to foster innovation and growth.