Bank of Korea: "Stablecoins May Act as Potential Risk Factors for the Economy"

The Bank of Korea has warned that stablecoins could pose potential risk factors to the domestic financial market and economy.

In its Financial Stability Report, the Bank of Korea explained, "Stablecoins are expanding their usage beyond the virtual asset ecosystem. Based on advantages such as accessibility and transaction efficiency, they are expected to contribute to digital financial innovation. However, risks coexist, including △coin run risk △payment and operational risks △forex transaction and capital inflow/outflow risks."

The Bank of Korea cautioned that if trust in the value stability and reserve assets of stablecoins is undermined, large-scale redemption demands could lead to de-pegging and coin runs. Furthermore, due to a lack of related systems and infrastructure, operational and settlement risks may arise, and if foreign currency-based stablecoins are widely used in non-reserve currency countries, there is a possibility of increased volatility and capital movement risks.

It also noted that the effectiveness of monetary policy could be constrained. The report states, "If stablecoin usage becomes widespread, the credibility of the currency may decline, the bank's credit creation function could weaken, and the effectiveness of monetary policy may be limited."

The Bank of Korea stressed, "Although institutionalization for the activation of stablecoins is being promoted both domestically and abroad considering their various advantages, if the connection between the virtual asset ecosystem and the traditional financial system is strengthened, it could serve as a potential risk factor for the overall economy. To minimize the potential risks of stablecoins, careful review is needed, including maintaining the reliability of value stability, reserve assets, and related infrastructure."