South Korea Tackles Stablecoin Risks as BOK Eyes Sandbox

- Governor Lee Chang-yong highlights regulatory challenges and monetary policy implications - The Bank of Korea to test won-based stablecoins via monitored sandbox initiative At a press conference on July 10, 2025, Bank of Korea Governor Lee Chang-yong raised concerns about the regulatory and monetary risks of non-banking institutions issuing won-denominated stablecoins. He warned that allowing multiple non-bank entities to issue these stablecoins could create confusion similar to historic challenges with private currency, potentially disrupting the nation’s monetary policy and foreign exchange liberalization efforts. According to a CoinDesk report on July 10, Lee cautioned that payment settlements outside traditional banking systems could significantly alter the revenue models of non-bank entities. He added that these entities would need regulations comparable to those for banks and stressed the need for caution to safeguard financial stability. These concerns emerge as South Korea advances its plans for a legal framework for stablecoins. On June 10, 2025, the ruling Democratic Party proposed the Digital Asset Basic Act to oversee stablecoin issuance, which requires issuing companies to hold at least 500 million won in equity capital and maintain adequate reserves for user refunds. To balance financial innovation with oversight, the Bank of Korea has opted for a regulatory sandbox to facilitate the controlled testing of stablecoin issuance. The initiative will involve collaboration among banks, fintech firms, and cryptocurrency exchanges, enabling the introduction of won-based stablecoins under stringent monitoring. During his remarks at the ECB's annual monetary policy forum on July 1, 2025, Governor Lee also highlighted risks from unregulated won-denominated stablecoins. He specifically cautioned about the potential for capital flight, which could materialize if users migrate from won-based stablecoins to foreign alternatives, such as U.S. dollar-denominated ones. To address these risks, the Bank of Korea proposes a phased model that would initially allow regulated commercial banks to issue stablecoins before gradually extending permissions to non-bank entities under strict regulatory conditions. In addition, the central bank recommended forming a pan-governmental policy body to synchronize stablecoin regulation and ensure cohesion across institutions responsible for monetary policy and financial stability.