The Bank of Korea (BOK) has issued a strict warning about the rise in use of stablecoins. In a recent report, the central bank indicated that digital assets like stablecoins have the potential to disrupt Korea’s monetary system.
According to the BOK, stablecoins, normally tied to fiat currencies, have gained popularity as an instrument for making payments. But with that increase comes some new risks. Such tokens may erode monetary policy strength and introduce volatility in the financial system.
Officially, if stablecoins increase unchecked, the central bank’s control over inflation and interest rates might be negatively affected. The BOK reiterated that a stable legal system was necessary to keep such risks in check.
The bank is all set to enter the next phase of regulation. The bank is eager to play an active role in establishing laws that could regulate stablecoin use and avoid disrupting markets.
They bring speed and affordability to users. Stablecoins operate across borders and outside banks. That is their strength in digital money. But according to the BOK, that’s also where their risks lie.
Stablecoin expansion and BOK’s concerns
However, since reserves support most stablecoins, if there is an issue with such assets, it could impact the wider market. The system might experience a lack of liquidity if numerous users try to redeem their coins simultaneously.
The BOK also cautioned that if individuals start to use stablecoins more than the Korean won, it may erode public confidence in domestic currency. That will make it more difficult for the central bank to stabilize prices.
Even with these risks, the BOK does not seek to ban stablecoins outright. It embraces innovation and recognizes a place for digital money in the years to come. But it demands guardrails to safeguard the economy.
New regulations will explore areas such as transparency, reserve requirements, and consumer protection. The bank is also planning to synchronize efforts with global regulators.
Nonetheless, the Bank of Korea (BOK) has issued a strict warning about the rise in use of stablecoins. In a recent report, the central bank indicated that digital assets like stablecoins have the potential to disrupt Korea’s monetary system.
