[Reporting Notebook] Why the emergence of won-coin NDFs is a bitter pill

Delays in legalization at home

Abroad moves first to set the rules for a digital won

Financial Desk Reporter Mi-hyun Jo

“The offshore won non-deliverable forward (NDF) market is large, but I didn’t expect the U.S. to roll out a won stablecoin-based NDF first.”

An FX market official said this after news broke on Wall Street that won-tracking derivatives using a won stablecoin would be launched. The market, long centered on banks and brokers, is also visibly surprised that offshore won trading could now migrate further into digital infrastructure built on stablecoins.

Until now, won stablecoins have been underestimated in Korea. Many argued they would struggle to become a global payment instrument like dollar stablecoins, and that Korea already has well-developed payment infrastructure—so there was no need to create a new one. But while the debate focused on domestic usefulness, overseas players moved first.

Considering that the won is the world’s second most actively traded NDF currency after the Indian rupee, it is not entirely surprising. Because physical won transactions face constraints abroad, the NDF market has developed significantly. And where the market is large, it is natural for new trades and products targeting it to emerge. The problem is that as such transactions grow, it becomes harder for FX authorities to respond, and exchange-rate volatility could increase.

Of course, it is understandable that FX authorities view it as difficult for this product to replace existing won NDFs. The outstanding amount and liquidity of KRWQ, the won stablecoin that underlies the product, are still negligible. But once trading gains momentum, today’s liquidity can change quickly. The authorities’ point that “even if the trade itself is easy to create, it is hard to become a proper market without a clear settlement reference price” is not seen in the market as a major obstacle. Another FX market participant countered that “it can refer to the benchmark price (MAR) already used in the market.”

What if Korea had already rolled out an institutionally supervised won coin and related infrastructure first? At a minimum, Korea could have taken the lead in setting the rules under which a digital version of the won would circulate and which markets it would connect to. It is likely that offshore entities would not have been the first to create a won coin and design trading structures around it, as is happening now.

It is painful that while institutionalization has been delayed by domestic disputes over who should issue a won coin and limits on major shareholders’ stakes in exchanges, the rules governing digital won trading have started to be built faster overseas. This is the result of being absorbed in reconciling interests while neglecting monetary sovereignty and FX-market stability after the advent of stablecoins. It is time to accelerate the work of legislating stablecoins.

Reporter Mi-hyun Jo mwise@hankyung.com