Bank of Korea Governor Warns of Stablecoin Threat to Monetary Policies

In a recent conference on digital money, Bank of Korea Governor Chang-yong Rhee issued a warning about the growing threat stablecoins pose to traditional central bank roles and monetary policies. Rhee emphasized the need for central banks to counteract this risk by introducing retail and wholesale forms of central bank digital currency (CBDC).

Rhee identified two primary concerns during his keynote speech. Firstly, the rise of stablecoins poses an existential threat to central bank money, potentially diminishing the effectiveness of traditional monetary policies. Secondly, he highlighted the lack of a proper regulatory framework for non-depository or non-financial institutions participating in the digital financial system.

The governor expressed worry that despite their name, stablecoins often lack intrinsic stability, which could further erode the role of central bank-issued money. Additionally, the potential involvement of global networks like Visa or Mastercard could complicate capital flows and impact monetary policy independence, especially for countries like South Korea.

To address these challenges, Rhee proposed the issuance of both retail and wholesale CBDCs. He cited South Korea’s ongoing efforts, including a pilot project for a retail CBDC system utilizing distributed ledger technology (DLT). The programmability of such currencies, allowing for complex, conditional transactions through smart contracts, was highlighted as a significant advantage.

Furthermore, the Bank of Korea, in collaboration with financial regulators and the Bank for International Settlements, is embarking on a second CBDC pilot project. This project aims to explore the integration of wholesale CBDCs with tokenized bank deposits, potentially issuing tokenized e-money by banks and non-bank financial institutions fully backed by wholesale CBDCs.

Governor Rhee’s concerns align with global sentiments, as major central banks and financial institutions, including the U.S. Federal Reserve and the Bank for International Settlements, have expressed similar worries about the risks associated with stablecoins. Read Similar Story

CryptoSlate reporter Assad Jafri and editor Jacob Oliver contributed to this report.