"Stablecoins Require Strict Regulation"

An opinion has emerged that strict issuance eligibility and business conduct regulations are essential for stablecoins (virtual assets whose value is linked to fiat currency).

On the 7th (Korean time), according to the industry, Lee Jeong-doo, Senior Research Fellow at the Korea Institute of Finance, said in a report titled "Regulatory Issues Arising from the Institutionalization of Stablecoins" that "if stablecoins replace currency and are used as a means of payment, problems such as issuers obtaining seigniorage gains, confusion in the transmission of monetary policy, the use of cross-border payment means that circumvent foreign exchange regulations, gaps in the tax collection system, and capital outflows could occur."

In particular, Lee pointed out that regulations should be revised to require issuers to promise redeemability. Without issuer-related regulations, situations in which redemption becomes impossible could arise, causing greater confusion.

Lee said, "Regarding issuance eligibility, it is necessary to secure the stable continuity of the business and for issuers to have social trust," and added, "standards such as governance that align with the business plan, internal controls, and the fitness of management should be applied together, rather than merely formal requirements like being a company under the Commercial Act."

He recommended that stablecoin businesses be conducted through subsidiaries. Lee said, "To prevent stablecoin-related risks from undermining the credibility of financial companies or directly transferring into the traditional financial system, it would be desirable for financial companies to participate in the business through separate subsidiaries rather than issue them directly."

He also said that the impacts of reserve asset accumulation and management need to be considered. He noted, "If reserve assets are demand deposits, a coin run could be a route that transmits into a bank run (deposit withdrawal crisis), and if they are government bonds, they could increase price volatility in the government bond market and become a factor of financial market instability."

Considering these elements, the gist of this report is that strict regulation of stablecoins is necessary. He emphasized, "In response to stablecoins' payment and economic functions and their expanding general-purpose use outside the virtual asset ecosystem, institutional supplements related to existing financial regulation, monetary policy, foreign exchange regulation, and payment and settlement systems must also be comprehensively reviewed," and added, "particularly from the perspective of 'same function, same risk, same regulation', it is necessary to flexibly apply the regulations that are applied to the existing financial sector and electronic payment instruments."