Bank of Korea Stresses Bank-Led Issuance of Won-Backed Stablecoins, While Fintech and IT Sectors Warn of Innovation Constraints

Debate Intensifies Over Issuers of Won-Pegged Stablecoins
BOK: “Non-Bank Issuance Involves Greater Risk and Weaker Oversight”
Non-Bank Sector: “Bank Monopoly Lacks Logical Justification”

As South Korea moves toward legislation governing won-based stablecoins, the Bank of Korea (BOK) has issued a warning over their potential risks. The central bank argued that because stablecoins operate outside its regulatory purview and lack user protection mechanisms, their issuance should be led by banks to minimize systemic risks. While the BOK emphasizes stability over innovation, fintech and IT companies contend that a bank-led model would stifle innovation and exclude non-bank players from meaningful participation.

BOK’s Cautionary Tone: Warning of Stablecoin Risks

According to financial industry sources on the 30th, the BOK has recently called for a cautious approach, highlighting the latent risks of won-pegged stablecoins. In its 141-page report, “Money in the Digital Era: Balancing Innovation and Trust—Key Issues and Policy Responses for Won-Pegged Stablecoins,” published on the 27th, the BOK stated, “Won-based stablecoins could be the key to unlocking new possibilities for Korea’s economy, but they may also sow the seeds of financial instability,” stressing that “a reliable institutional safety net must underpin innovation.”

The report noted, “Unlike traditional currency, which the central bank controls through reserve requirements, open market operations, and liquidity facilities, stablecoins fall outside these mechanisms.” It further warned, “The promise of ‘1 coin = 1 won’ is merely a private contract between the issuer and the holder, not a guarantee under national law or central bank policy. If an issuer fails to honor redemptions, holders are not protected under the Deposit Insurance Act.”

To mitigate these risks, the BOK reiterated its support for a bank-led stablecoin model. “If banks become the primary issuers—or if stablecoins are launched through bank-centered consortiums—many of the vulnerabilities could be managed within the existing regulatory framework,” the report said. It added that non-bank entities such as IT companies could still participate in consortiums to drive innovation and product development. The BOK has consistently maintained since the early 2020s that bank-based models offer greater stability and regulatory compliance advantages in the management of digital currencies and stablecoins.

Domestic Banks Testing Consortium-Based Stablecoin Models

Three main approaches are currently under discussion for non-bank participation in stablecoin issuance: (1) allowing qualified non-banks to issue under strict conditions, (2) granting limited “narrow banking” licenses to selected non-banks, and (3) enabling non-banks to join bank-led consortiums. The BOK favors the third model as the most viable, under which banks would act as majority stakeholders responsible for issuance, blockchain infrastructure, and regulatory compliance, while non-banks would focus on technological innovation, product design, and distribution.

Reflecting this trend, both banking and non-banking institutions have begun joint experiments in stablecoin projects. In August, major Korean banks—including Shinhan, NH NongHyup, and K Bank—completed the first phase of the “Pax Project,” a pilot program testing blockchain-based remittance and foreign exchange using won-pegged stablecoins in collaboration with Japanese megabanks. The Open Blockchain & DID Association (OBDIA), comprising 13 domestic banks, is also conducting advanced proof-of-concept (PoC) trials with blockchain firms for won-based stablecoin issuance.

In the non-bank sector, Kyobo Life has emerged as a notable participant. The insurer has joined the testnet of Arc, a blockchain developed by stablecoin issuer Circle, as a partner organization. Arc supports settlement, foreign exchange, and capital market transactions using stablecoins backed by multiple national currencies, including those of South Korea, Australia, Brazil, Japan, Mexico, the Philippines, and Canada. The project’s global participants include Goldman Sachs, BlackRock, HSBC, and Standard Chartered. Kyobo Life and domestic fintech firm Bithumb DAX (Bidax) are jointly testing a won-pegged stablecoin named “KRW1.”

Diverging Global Approaches to Stablecoin Issuance

Some industry experts, however, argue that the BOK’s insistence on a bank-led model lacks robust rationale. Seo Sang-min, Chairman of the Kaia DLT Foundation, said, “While the central bank’s concerns are understandable, competition should be open to both banks and qualified non-banks. A rule-based framework that minimizes monetary risk while fostering innovation would be more effective.” He added, “If the BOK clarifies the criteria for issuer credibility and risk mitigation, that would serve as far more practical guidance for market participants.”

Seo Byung-yoon, Director of the DSRV Future Finance Institute, also cautioned that “innovation will stagnate if banks hold all the authority,” noting that “one reason the euro failed to gain traction against the dollar was its reliance on a bank-centric structure.” Indeed, the global stablecoin market is dominated by non-bank issuers such as Tether (USDT) and Circle (USDC). In the United States, fintech firms are permitted to issue stablecoins as long as they are fully backed by cash and short-term Treasury securities, while Europe has favored a consortium model centered on large commercial banks issuing euro-backed stablecoins.

Asia’s policy responses have also diverged. The People’s Bank of China and the Cyberspace Administration of China recently instructed Alibaba affiliate Ant Group and e-commerce giant JD.com to “suspend all stablecoin-related activities,” prompting both firms to withdraw from Hong Kong’s pilot stablecoin and tokenized bond programs under the Hong Kong Monetary Authority (HKMA). In contrast, Japan has taken a more crypto-friendly stance: the Financial Services Agency is considering revisions to allow banks to hold cryptocurrencies—including Bitcoin—as investment assets.