Korea Capital Market Institute: 'Short-term Treasury Bonds Needed for Korean Won Stablecoin'

There has been an argument that short-term treasury bonds are necessary to enhance the stability and liquidity when introducing Korean won stablecoins (virtual assets pegged to the value of fiat currency).

According to the industry on the 11th (Korean time), Kim Pil-gyu, Senior Research Fellow at the Korea Capital Market Institute, said, "It's important to consider laying the appropriate foundations in preparation for the introduction of the Korean won stablecoin."

He explained that reserve assets are needed to improve the payment stability and store of value features of the won stablecoin, and that insufficient government funds can be supplemented with treasury bonds.

He noted, "In particular, short-term treasury bonds carry low risk even during sharp interest rate shifts or changes in market demand, and their relatively lower interest rates compared to long-term bonds help streamline government funding and operations."

The U.S. 'Genius Act' also requires stablecoin issuers to back their coins with U.S. dollars or Treasury securities.

In Korea, however, due to regulatory constraints, short-term treasury bonds have not yet been introduced, making it necessary to revise current regulations. Under the current National Finance Act, all government bonds require approval from the National Assembly for their issuance amount. Thus, introducing short-term treasury bonds is difficult, as the issuance amount would increase significantly due to refinancing, despite the same outstanding bond balance.

Researcher Kim insisted, "There is a need to change the management standard of national debt from the total issuance to the net increase or outstanding balance."

He pointed out, "If stablecoins are introduced in the future and demand for short-term risk-free bonds rises, instability in the supply and demand of short-term bonds as well as price distortions may occur." He added, "Now is the time to improve systems that restrict the introduction of short-term treasury bonds and devise measures for the efficient adoption of such bonds."