Bank Of Korea Calls For Bank-Issued Stablecoins To Prevent Financial Risks
The Bank of Korea (BOK) has urged lawmakers to undertake a bank-led mannequin for stablecoin issuance forward of the upcoming regulatory framework, warning that Korean Won (KRW)-pegged tokens might “repeat previous financial failures.”
BOK Raises Financial Stability Concerns
On Monday, the Bank of Korea launched a 140-page report warning that stablecoins might unlock new prospects for the Korean financial system however might additionally “sow the seeds of recent instability.”
According to native information media shops, the central financial institution urged lawmakers to fastidiously overview won-pegged digital belongings forward of the discharge of the long-awaited regulatory framework, itemizing a number of dangers that these tokens might pose to monetary and financial stability.
As reported by Bitcoinist, Financial Services Commission (FSC) Chairman Lee Eun-won just lately confirmed that the regulatory company plans to submit the second part of the Virtual Asset User Protection Act to the National Assembly this yr, which is able to comply with US regulatory steps and embody a ban on stablecoin curiosity fee.
The BOK report affirmed that the promise behind stablecoin raises unrealistic expectations available in the market, arguing that “The pledge of ‘1 coin equals 1 gained’ is merely a non-public settlement between issuers and customers and isn’t legally or institutionally assured by the central financial institution.”
“If the issuer fails to maintain the redemption promise, stablecoin holders, in contrast to financial institution depositors, should not protected underneath related legal guidelines,” the BOK added. It warned that these tokens are “vulnerable to deppeging,” citing higher issues for non-dollar stablecoins, the place the chance is increased as a consequence of thinner liquidity.
Additionally, the central financial institution highlighted the gaps in client safety legal guidelines and the potential that these tokens might “allow regulatory evasion and capital flight, weaken the effectiveness of financial coverage and undermine banks’ conventional position as monetary intermediaries.”
A Bank-Led Model For Won-Pegged Stablecoins
Amid the potential dangers, the BOK considers that “belief is essential to reliably help innovation, so institutional safeguards are essential.” It reiterated that stablecoin issuance should be led and strictly regulated by banks to make sure reliability and public belief.
In July, BOK Governor Lee Chang-yong expressed issues in regards to the potential issuance of stablecoins pegged to the Korean Won by non-bank entities, arguing that they may confuse financial insurance policies and overseas alternate rules.
“If banks develop into the principle issuers of stablecoins, or if stablecoins are issued by bank-led consortia, many of those related dangers may very well be managed underneath the present regulatory framework,” the Monday report defined. “Non-banking firms, corresponding to IT companies, may also take part in bank-centered consortia to drive innovation and progress.”
Notably, monetary establishments in Korea have been making ready for 2 potential legalization eventualities over the previous few months, because it has been unclear if non-bank entities shall be allowed to problem the digital belongings.
The sector has reportedly explored a enterprise mannequin during which banks set up a three way partnership to collectively problem stablecoins, whereas additionally contacting varied non-bank firms to arrange for the upcoming framework.
Kim Chul, head of the BOK’s Payment & Settlement Systems Department, said that underneath this method, regulators can intently monitor the sector’s scale and keep stability, “permitting this new type of foreign money to take root inside the formal monetary system.”
Another BOK official added that “stablecoin laws is shifting shortly, and we hope this report serves as a key reference for these discussions.” Ultimately, the central financial institution referred to as for a joint coverage council amongst financial, overseas alternate, and monetary authorities.
