Economist Hyun Song Shin: "Introducing a Korean won stablecoin cannot curb demand for dollar-based coins"

Source

Korea Economic Daily

Summary

Hyun Song Shin, Chief Economist at the BIS, stated that stablecoins are used to bypass controls on financial crime and capital flows, and blocking illegal transactions is difficult.
He expressed concern that introducing a Korean won stablecoin would not suppress the demand for dollar-based stablecoins, and might even facilitate capital outflows.
Experts emphasized that CBDCs would improve transparency and efficiency, underlining the necessity of their adoption and urging the continuation of pilot projects such as Project Han River.

Hyun Song Shin, Chief Economist at the BIS

Speech at the 'Central Bank Digital Currency' session

National Currency Stablecoins

Potential Channel for Capital Outflows

Central Bank Digital Currency as an Alternative

Bank of Korea's 'Project Han River' Should Continue

63% of Virtual Asset Crimes

Are Related to Stablecoins

Hyun Song Shin, Chief Economist at the Bank for International Settlements (BIS, center), engages in a discussion with economists during the digital currency session at the World Congress of Economists held on the 21st at COEX, Samseong-dong, Seoul. From the left: Silvana Tenreyro, Professor of Economics at the London School of Economics, Seong Kwan Yoon, Director of the Digital Currency Research Division at the Bank of Korea, Economist Shin, David Andolfatto, Professor at the University of Miami, Matteo Maggiori, Professor at Stanford Graduate School of Business. Photo=Lee Sol, Korea Economic Daily Reporter

"63% of virtual asset crimes occur through stablecoins. By restricting the conversion of coins in wallets involved in illegal transactions, such crimes can be curbed."

Hyun Song Shin, Chief Economist at the Bank for International Settlements (BIS), stated this as a speaker at the 'Central Bank Digital Currency (CBDC) Status' session of the World Congress of Economists held on the 21st at COEX, Samseong-dong, Seoul. Shin, who occupies the highest-ranking role at the BIS, often called the central bank of central banks, pointed out, "Stablecoins are widely used as a means to circumvent financial crime control and capital in- and outflow regulations," and "even in countries with institutional measures such as foreign exchange laws, it is difficult to block illegal stablecoin transactions."

"Stablecoin Crime Must Be Prevented"

Shin proposed tracing the transaction history of wallets passing stablecoins and calculating a 'legality score' as a regulatory measure to prevent such illegal trades. Coins passing through wallets with a record of illegal activity would be given a lower score, and if the score is below a certain level, banks would refuse to exchange them. He explained, "Because coins with low scores will trade at a discount, there will be an increased obligation to exercise caution in illegal transactions," adding, "It would be ideal to implement this through international cooperation, but individual countries can enforce it immediately."

He offered a pessimistic outlook regarding a Korean won stablecoin. Shin commented, "Even if a domestic currency (in Korea's case, the won) stablecoin is introduced, demand for dollar-based stablecoins will remain strong," and "a domestic currency stablecoin may actually promote exchange with dollar-denominated virtual assets, providing a channel for capital outflows." This directly rebuts the claim that issuing a Korean won stablecoin could prevent the infringement of monetary sovereignty posed by the dollar stablecoin. Currently, dollar-denominated stablecoins make up 99% of global stablecoin circulation.

As an alternative to stablecoins, Shin suggested a digital currency platform centered around tokenized central bank and commercial bank money. He said, "Project Han River from the Bank of Korea or Project Agora from the BIS could be alternatives," adding, "In particular, Project Han River should continue without interruption."

CBDC to Improve Transparency

Seong Kwan Yoon, Director of the Digital Currency Research Division at the Bank of Korea, introduced the achievements of Project Han River. He stated, "More than 80,000 people participated over three months, successfully verifying fast, fee-free payments and programmable smart voucher functions." Director Yoon emphasized the significance of CBDC, saying, "It can be a key transformation for a more transparent and efficient financial ecosystem," and "by tracking the flow of public funds such as government subsidies on the CBDC platform, fiscal management could become more transparent."

Most of the economists participating in the session supported CBDCs over stablecoins. Matteo Maggiori, Professor at Stanford Graduate School of Business, pointed out, "A stable digital currency based on the public sector is necessary, rather than leaving everything to the private sector." Silvana Tenreyro, Professor of Economics at the London School of Economics (former member of the UK's Monetary Policy Committee), stated, "If Korean deposits are converted into dollar-based stablecoins, the cost of raising funds domestically will rise."

Young Sik Kim, Professor of Economics at Seoul National University, said, "In a survey of 3,561 adults, 19% selected the CBDC as their preferred payment method," projecting that "a general-purpose CBDC, if introduced, could see widespread use."

Sung Hoon Cho, Professor of Economics at Yonsei University, observed, "The rapid proliferation of stablecoins is increasing financial instability and the risk of a 'coin run,' heightening the necessity for introducing CBDCs."

Kang Jin-gyu / Lim Da-yeon, josep@hankyung.com

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