"Stablecoin risks can be managed by design"…Min Byung-deok publishes report refuting Bank of Korea's '7 major risks'

Min Byung-deok, a member of the National Assembly's Committee on Economy and Finance from the Democratic Party, on the 26th released a report that directly refutes the '7 major stablecoin risks' presented recently by the Bank of Korea.

The report was prepared by more than 10 experts from related fields including economics, law, digital assets, financial regulation, and monetary policy. The report stated that it analyzed the Bank of Korea's claims based on the European MiCA regulation, U.S. money market funds (MMF), and empirical studies by the Bank for International Settlements (BIS), and built a review basis using empirical data.

Earlier, the Bank of Korea, in its own report, presented seven risks of Korean won stablecoins: ▲price instability (depegging) ▲rapid bank-run risk ▲absence of depositor protection ▲violation of the separation of banking and commerce ▲promotion of capital outflows ▲weakening of monetary policy effectiveness ▲impairment of financial intermediation. It argued that these structural risks could become sources of instability across the financial and monetary systems.

However, Min's office report rebutted that such concerns can be sufficiently controlled through institutional design. It analyzed that if designs such as a legal 1:1 redemption guarantee, 100% safe-asset holding requirement, bankruptcy-remote trust, and redemption speed control mechanisms are in place, most of the risks raised by the Bank of Korea are practically manageable.

Min said that the Bank of Korea's mentions of depegging, coin runs, and gaps in consumer protection are "microscopic risks manageable through appropriate institutional design," and added, "Rather, the real risk is failing to build a Korean won stablecoin in time and ceding economic leadership to dollar stablecoins and overseas big tech."

Regarding the Bank of Korea's concern about 'coin runs,' the report pointed out structural differences between banks and stablecoins. The report evaluated that "banks are structurally vulnerable to bank runs because they are based on a fractional reserve system, but stablecoins can be designed by depositing the entire issuance amount in safe assets, so the structure is essentially different." It also explained that a fast click speed does not mean redemptions actually occur immediately, and that off-chain constraints such as identity verification and bank business hours exist.

On the separation of banking and commerce controversy, the report analyzed that "the core of separation of banking and commerce is to prevent industrial capital from abusing credit creation, and stablecoins, which are premised on 100% reserves, fundamentally block lending functions, so they do not fall under the principle of separation of banking and commerce." It added that concerns about big tech monopolies should be handled in the realm of competition policy rather than as an issue of separation of banking and commerce.

Min separately presented what he calls the 'real 7 major risks' that the Bank of Korea overlooks. He pointed to risks such as a 'won run' in which, during a foreign exchange crisis, trust shifts to dollar stablecoins and accelerates the depreciation of the won; the risk of falling behind in AI competition as payment data concentrates overseas; and the risk that domestic payment networks become dependent on dollar stablecoins as Korea loses out in currency competition.

He also cited structural risks such as Hallyu content payments and royalty flows being processed through overseas stablecoins, weakening profitability and data sovereignty; the loss of foreign exchange fee revenue from tourists' stablecoin payments shrinking the cultural consumption ecosystem; the danger that global capital market clearing and settlement infrastructure could be dominated by foreign stablecoins, undermining the financial hub strategy; and domestic fintech firms being reduced to subcontractors of overseas payment networks, weakening competitiveness.

The report warned that once these risks become entrenched, they could lead to 'structural losses' that are difficult to reverse. Unlike the Bank of Korea's seven risks, which were presented focusing on micro and short-term risks, the report explains that the real risks are macro and structural issues spanning foreign exchange, currency, data, and industrial competitiveness.

Min said, "The core of policy is not whether stablecoins are risky or safe, but what Korea stands to lose if it fails to build a Korean won stablecoin," and emphasized, "Policies must be promptly reviewed and implemented to prevent structural losses across foreign exchange, currency, data, finance, and industrial competitiveness." He added, "The answer is design, not prohibition."