Chung Un-chan
The author, a former president of Seoul National University, is the chairman of the Korea Institute for Shared Growth.
Money has evolved alongside human economic activity. As societies transitioned from agricultural to industrial to digital economies, the forms of money shifted from metal coins to paper currency to electronic payments. Today, accelerating digitalization is pushing the boundaries again — toward a new monetary form known as the stablecoin.
In the United States, the Donald Trump administration previously promoted stablecoins backed by the U.S. dollar, arguing that they could generate large-scale demand for U.S. Treasury bonds. More recently, Congress passed the GENIUS Act, which brings dollar-based stablecoins under regulatory oversight. In Korea, then-presidential candidate Lee Jae Myung pledged to institutionalize a won-based stablecoin, and lawmakers are now moving forward. In June, Democratic Party (DP) Rep. Min Byung-dug introduced a Digital Asset Framework Act, and DP Rep. Ahn Do-geol followed with a bill focused specifically on issuing and operating won-based stablecoins.
A stablecoin is, as the name suggests, a form of digital currency designed to maintain stable value. Unlike highly volatile crypto-assets such as Bitcoin, stablecoins are pegged 1:1 to a fiat currency like the won or the dollar. One unit of the dollar-pegged stablecoin Tether, for instance, is always worth one dollar and can be redeemed for that amount. This price stability, coupled with the advantages of blockchain technology — real-time settlement and lower transaction fees — makes stablecoins appealing as next-generation digital currencies.
But how is that price stability maintained? The simplest model involves the issuer holding reserves equal to the value of the coins in circulation. If a company issues $1 billion worth of coins, it should hold $1 billion in reserve, often with a financial institution, to ensure convertibility and public trust.
In practice, however, many issuers do not hold cash. Instead, they rely on liquid, interest-bearing assets such as short-term government bonds or commercial paper. If these assets lose value or if the reserve data lacks transparency, trust in the 1:1 peg can erode quickly.
A historical analogy offers a warning. In the mid-19th century, the United States entered a “free banking” era, where anyone with minimal capital could start a bank and issue notes backed by collateral. The GENIUS Act echoes this approach by allowing stablecoin issuance for both banks and nonbanks holding U.S. Treasurys as reserves. Back then, some banks issued notes without sufficient backing, triggering bank runs and cascading bankruptcies. Depositors and noteholders bore the losses.
This precedent shows the systemic risks of an unregulated stablecoin ecosystem. Without clear oversight, a sudden “coin run” or liquidity crisis could ripple through the financial system.
To build a stablecoin system that balances innovation and financial stability, Korea should pursue a phased approach. Initially, only commercial banks should be allowed to issue stablecoins in the form of “deposit tokens” — digital representations of bank-held deposits. The Bank of Korea (BOK) has already tested this model in its pilot program for wholesale central bank digital currency. Given that banks operate within capital regulations, reserve requirements and deposit insurance schemes, they are well-positioned to manage initial risks.
In later stages, issuance could expand to nonbank firms, including major tech companies. But regulators must apply the same standards to all players under a “same function, same regulation” framework. These firms should meet reserve and oversight requirements comparable to those for banks. Such a “banks first, nonbanks later” model would allow for gradual market opening without endangering financial stability. However, for this step-by-step liberalization to be meaningful, the government and the BOK must continue pushing banks to lower remittance and settlement fees and modernize payment systems.
Issuing and supervising stablecoins is not just a technological or industrial issue — it is a sovereign responsibility. It affects public confidence in currency and the integrity of the financial system. The BOK must therefore be at the center of the discussion.
Yet current bills in the National Assembly either exclude the central bank from the authorization process or reduce its role to that of a consultative body. To safeguard against instability, the BOK must be empowered as the institution responsible for upholding monetary order and the value of legal tender.
The BOK should not sit on the sidelines. The era of viewing it as a mere “Namdaemun branch office of the Ministry of Economy and Finance” should be over. To fulfill its mandate as an independent central bank, it must take an active, leading role in shaping stablecoin legislation — before it is shaped without it.
Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
