Lee Chang-yong warns of 'won stablecoin and capital outflow concerns' at ECB forum

Concerns raised about stablecoins at ECB forum

'May cause capital flight... Need for discussions with the government'

Central bank governors from various countries also agreed

Lagarde: 'Privatization of currency threatens monetary sovereignty'

Bank of Korea Governor Lee Chang-yong expressed concerns about privately led issuance of a won-based stablecoin in discussions with other foreign central bank chiefs.

At the ECB’s annual monetary policy forum held in Sintra, Portugal, on the 1st (local time), Governor Lee was the first to respond to a question about whether stablecoins should be prioritized over central bank digital currencies (CBDC), warning that issuing a won stablecoin could lead to capital outflow.

He noted, "If a won-based stablecoin is permitted in an unregulated environment, it could accelerate a switch to dollar-based stablecoins," adding that "this can trigger capital flight and weaken Korea's capital inflow and outflow regulations."

He continued, "Recently, with the passage of the 'Genius Act'—a stablecoin regulatory bill—in the U.S., demand for dollar-based stablecoins has soared. As a result, fintech companies and proponents of stablecoins in Korea are increasingly calling for the issuance of won stablecoins."

He explained, "Although we are running pilot projects with commercial banks for tokenized deposits within a permissioned network, issuing stablecoins on public networks is a completely different issue. This goes beyond the authority of the Bank of Korea, making close discussion with the relevant ministries necessary."

He also expressed skepticism about the stability and effectiveness of stablecoins. Governor Lee said, "There are claims that blockchain technology is effective for anti-money laundering and illegal transaction detection, but it is unclear to us whether this can actually be implemented." He added, "Because there are structural issues such as narrow banking (banks with payment and settlement functions only, without lending) and impacts on monetary policy, there is a need to discuss institutional solutions with the government."

Major central bank governors attending the forum raised similar concerns. Andrew Bailey, Governor of the Bank of England (BOE), said, "Since stablecoins claim to function as money unlike Bitcoin, they must actually meet the conditions of money. If they fail to maintain nominal value and serve as a means of exchange, it is difficult to accept them as money."

ECB President Christine Lagarde pointed out that stablecoins can compromise the independence of monetary policy. She said, "We are currently facing a situation where the concepts of money, payment means, and infrastructure are becoming blurred due to technology. Money is a public good, and it is the responsibility of the central bank to protect it. If such concepts become blurred due to stablecoins and 'privatization of currency' occurs, it can damage a country’s ability to carry out monetary policy and threaten its monetary sovereignty."

Jerome Powell, Chair of the U.S. Federal Reserve (Fed), also said, "I share the aforementioned concerns," but added, "It is positive that discussions on stablecoin regulation are underway in the U.S." He continued, "With cooperation between the Republican Party and Democratic Party, meaningful progress has been made on (stablecoin regulation)," and added, "If we are to embrace stablecoins, a corresponding regulatory framework is essential."

Hwang Doo-hyun, BloomingBit reporter cow5361@bloomingbit.io