In a bold move aimed at curbing capital flight and fortifying national financial sovereignty, South Korea’s Democratic Party leader, Lee Jae-myung, has proposed the creation of a stablecoin backed by the Korean won. This initiative is set against the backdrop of significant asset outflows from the country, with nearly 56.8 trillion won ($40.8 billion) reported during the first quarter of the year, much of which is linked to foreign stablecoins like USDT and USDC.
Lee articulated his vision during a recent policy discussion, emphasizing that a won-backed stablecoin would enable South Korea to maintain domestic wealth and reduce reliance on foreign digital assets. He stated, “We need to establish a won-backed stablecoin market to prevent national wealth from leaking overseas.” Currently, South Korean regulations prohibit the issuance of domestic stablecoins, forcing local exchanges to depend on US dollar alternatives.
The Context of Lee’s Proposal
- Increased outflows linked to foreign stablecoins.
- Legal restrictions on domestic stablecoin issuance.
- A need for an integrated monitoring system and reduced transaction fees for cryptocurrencies.
This proposal is part of a more extensive digital asset strategy that includes plans to legalize spot cryptocurrency exchange-traded funds (ETFs). Both Lee and his rival, Kim Moon-soo of the People Power Party, have expressed their support for introducing such financial instruments, which could transform the landscape for crypto investments in South Korea.
Furthermore, Lee’s campaign includes facilitating the involvement of institutional investors, like the National Pension Fund, in cryptocurrencies, but only once specific price stability criteria are fulfilled. While this initiative has gained traction, it hasn’t gone without criticism; economists have raised alarms regarding the potential economic implications of stablecoins. Shin Bo-sung, a senior researcher at the Korea Capital Market Institute, commented, “Stablecoins are essentially another form of banking, creating money out of nothing.”
Government Support for Crypto Initiatives
To support this burgeoning industry, the Democratic Party has recently established a Digital Asset Committee, which aims to enhance cryptocurrency regulations and promote growth within the sector. This committee is tasked with addressing regulatory uncertainties and developing comprehensive policies including the anticipated Digital Asset Basic Act. This legislation would mandate that issuers of stablecoins maintain a reserve of at least 50 billion won and obtain approval from the Financial Services Commission.
This forthcoming regulatory framework is highly anticipated, especially following the establishment of similar committees, including the Virtual Asset Committee and a public-private task force initiated in 2022 by the Financial Services Commission. Support for crypto-friendly legislation among leading political figures has sparked optimism within the industry, contributing to a growing call for legal recognition and stability in the digital asset market.
In conclusion, Lee Jae-myung’s proposed stablecoin reflects a strategic effort to enhance South Korea’s financial sovereignty and bolster the domestic economy against the impacts of global financial systems. As discussions continue, the implications of such regulations could significantly reshape the future of digital currencies in South Korea.
