🚨 Stablecoin Control Debate
Today Korean Economic News for Beginners | 2025.11.25
0️⃣ Bank of Korea "Banks Need 51% Stake" vs Industry "Hinders Innovation", Year-End Bill Uncertain
📌 Separation of Finance and Commerce & Anti-Money Laundering vs Excessive Regulation… Institutional Discussion Deadlocked
💬 The Bank of Korea's insistence that banks must hold at least 51% of won-based stablecoin issuer shares is causing difficulties in legislative discussions. While BOK argues that a bank-centered structure is necessary to maintain the separation of finance and commerce principles and prevent money laundering, financial authorities and the industry are taking a cautious stance, saying excessive regulation could hinder innovation. Concerns are raised that if Korea alone insists on a bank-centered model while global stablecoin issuers like Tether and Circle operate with technology and capital market-centered structures, market competitiveness could decline. Experts suggest a compromise of gradually allowing card companies and specialized payment financial institutions to participate, but the possibility of implementing the system within this year is decreasing as core disagreements remain unresolved.
1️⃣ Easy Understanding
The Bank of Korea, financial authorities, and the industry are in sharp conflict over who should issue and manage stablecoins. This issue goes beyond simple cryptocurrency regulation to the question of who will take the lead in future digital finance.
First, let's understand what stablecoins are. Regular cryptocurrencies like Bitcoin or Ethereum have very high price volatility. Something worth 1 million won today could be 800,000 won or 1.2 million won tomorrow. Because of this unstable price, they are difficult to use as actual payment methods.
Stablecoins were created to solve this problem. For example, they are digital currencies with fixed values like "1 coin = 1 dollar" or "1 coin = 1,000 won." How do they fix the value? The issuer actually holds that much dollars or won whenever they issue coins. It's similar to how in the gold standard era, they held that much gold when printing currency.
Stablecoins can be used in real life because their price is stable. You can use them for international money transfers, online shopping, or sending money to friends. Especially, you can trade quickly and cheaply anywhere in the world with just a smartphone, even without a bank account.
Currently, the most widely used stablecoins globally are Tether (USDT) and USD Coin (USDC). These are pegged to the dollar and form a market worth hundreds of billions of dollars worldwide. Korea is also trying to create a stablecoin linked to the won, but problems have arisen here.
The Bank of Korea claims that "banks must hold at least 51% of stablecoin issuer shares." Why make this claim? There are three main reasons.
First, because of the separation of finance and commerce principle. This principle means finance and industry must be separated. Simply put, large companies like Samsung or Hyundai should not own banks. Because if conglomerates own banks, they might give loans only to their affiliates or abuse the financial system for their own benefit.
The Bank of Korea's logic is this: "Stablecoin issuers essentially play the same role as banks. They receive money from people, keep it safe, and provide payment services with it. This is the core function of banks. But if tech companies like Kakao or Naver issue stablecoins, they will essentially be playing the role of banks. This violates the separation of finance and commerce principle."
Let's take an example. Suppose Kakao issues a won-based stablecoin. People deposit money with Kakao and receive stablecoins in return. Kakao needs to invest the received money somewhere, and could invest or lend to its affiliates. If this happens, Kakao essentially plays a bank role while using the financial system for its own benefit.
Second, preventing money laundering. Cryptocurrencies have strong anonymity and risk being used for crimes. They could be used for drug trafficking or illegal fund transfers. Banks have long operated anti-money laundering systems and have thorough procedures for verifying customer identity (KYC). The Bank of Korea argues that "banks must lead to prevent illegal activities like money laundering."
Third, financial stability. There have been many cases where investors suffered great damage when cryptocurrency exchanges were hacked or suddenly closed in the past. The Terra-Luna incident is a representative example. The Bank of Korea's position is that banks are safer because they receive strict capital regulation and supervision.
On the other hand, financial authorities and the industry have opposing views. They say "if we go with a bank-centered approach, innovation will slow down."
First, let's hear the industry's argument. Fintech companies like Kakao Pay or Naver Pay already have tens of millions of users and have built convenient payment systems. If they issue stablecoins, the market can expand quickly. But if banks must hold at least 51% of shares, tech companies essentially lose control.
For example, if Kakao wants to do stablecoin business, they need to partner with a bank, but if the bank has 51% of shares, the bank also has decision-making power. Then fast decision-making and innovative service development become difficult. Banks tend to be conservative and sensitive to regulations, so they hesitate to try new things.
Global cases are also different from Korea. Tether, which issues the world's largest stablecoin, is not a bank. The same goes for a company called Circle. These are technology companies and capital market participants, not traditional banks. The US is also discussing stablecoin regulations, but there are no regulations requiring banks to hold at least 51% of shares.
Financial authorities also have a slightly different position from the Bank of Korea. The Financial Services Commission and Financial Supervisory Service believe that "of course safety is important, but too strict regulation can prevent market development." There is particular concern that if Korea doesn't utilize its strengths as an IT powerhouse with a developed fintech industry and only goes bank-centered, it could fall behind in global competition.
So what compromises are possible? Experts suggest several alternatives.
First, a plan to first allow card companies or specialized payment financial institutions to participate. These are not banks, but they are subject to financial regulation and have rich experience operating payment systems. For example, allowing companies like Shinhan Card or KB Kookmin Card to do stablecoin business.
Second, a phased approach. Start bank-centered at first, but gradually open the door to other companies as the market stabilizes. This way, you can ensure safety initially and later promote competition and innovation.
Third, setting issuance limits. Companies other than banks can also issue stablecoins, but only allow small amounts at first and gradually increase. This way you can manage risks while giving opportunities for innovation.
However, currently even these compromises are not easily agreed upon. The Bank of Korea sticks to principles, the industry demands deregulation, and financial authorities try to coordinate in the middle, but the situation is not easy.
Ultimately, this debate is about how to balance 'safety and innovation.' If you emphasize only safety, innovation is blocked; if you emphasize only innovation, risks increase. What we need is wise institutional design that keeps both alive.
2️⃣ Economic Terms
📕 Stablecoin
Stablecoins are cryptocurrencies that minimize price volatility by pegging their value to specific assets (mainly fiat currency).
- They fix values like 1 coin = 1 dollar or 1 coin = 1,000 won.
- Issuers must hold that much fiat currency or assets when issuing coins.
- Because prices are stable, they are suitable for use in real life for payments, transfers, etc.
📕 Separation of Finance and Commerce Principle
The separation of finance and commerce principle is an institutional principle that financial capital and industrial capital must be separated.
- If conglomerates or large companies own banks, they can give preferential loans to their affiliates, distorting the financial system.
- After the 1997 financial crisis, Korea further strengthened the separation of finance and commerce.
- The Bank of Korea believes tech companies issuing stablecoins violates this principle.
📕 Narrow Banking
Narrow banking is a bank model that focuses only on deposit-taking and payment services without lending business.
- Risk is lower than traditional banks, but profitability is also limited.
- The Bank of Korea views stablecoin issuers as essentially playing a narrow banking role.
- The argument is that bank-level supervision is needed to perform this function without regulatory gaps.
📕 Anti-Money Laundering (AML)
Anti-money laundering is a system that prevents illegal funds from being laundered through the financial system.
- Banks have obligations for customer identity verification (KYC) and suspicious transaction reporting (STR).
- Cryptocurrencies have strong anonymity and risk being used for money laundering.
- The Bank of Korea argues that a bank-centered structure is more effective in preventing money laundering.
3️⃣ Principles and Economic Outlook
✅ Balance Between Financial Stability and Innovation
Stablecoin institutionalization is about how to harmonize the two values of safety and innovation.
First, financial stability is a basic principle that cannot be compromised. As seen in the past Terra-Luna incident, poorly designed stablecoins can collapse overnight. In Terra's case, they tried to maintain price through algorithms but failed, and trillions of won in assets evaporated. Also, during the 2023 Silicon Valley Bank incident, Circle's USDC temporarily lost its dollar peg. These cases show that stablecoins can also be dangerous. Therefore, it is important that issuers hold sufficient capital, operate transparently, and are properly supervised.
Second, however, excessive regulation can hinder innovation. The regulation requiring banks to hold at least 51% of shares essentially means only banks can issue stablecoins. If this happens, we cannot utilize the innovative ideas or fast execution of tech companies. In fact, major countries like the US, Europe, and Singapore are discussing stablecoin regulations, but they have not adopted strict regulations like the 51% bank share requirement. Instead, they focus on practical safeguards like capital requirements, reserve holdings, and regular audits.
Third, ultimately what matters is not 'who does it' but 'how it's done.' Whether it's banks or tech companies, the key is to clarify the standards issuers must follow. For example, they must hold assets 1:1 equivalent to issued coins, those assets must be kept in safe places, and they must be audited regularly. Also, customer identity verification for anti-money laundering must be thorough. If these standards are met, it is reasonable to allow non-banks to issue stablecoins.
Finding a balance between safety and innovation is the way to secure global competitiveness.
✅ Reinterpretation of Separation of Finance and Commerce Principle
How to apply the separation of finance and commerce principle in the digital age is also an important issue.
First, the original purpose of separating finance and commerce is still valid. Korea had a painful experience in the 1997 financial crisis when the economy collapsed due to the combination of conglomerate octopus-style expansion and financial insolvency. Since then, Korea has strengthened the separation of finance and commerce to prevent conglomerates from owning banks, which has contributed to maintaining the soundness of the financial system. If Samsung or Hyundai owned banks, there would be a risk of making excessive loans to affiliates or abusing the financial system for private gain.
Second, however, whether stablecoin issuers are the same as traditional banking business is debatable. Stablecoin issuers don't take deposits but hold assets in exchange for issuing coins. They don't make loans either. This is closer to an asset custodian or payment service provider than a traditional bank. In fact, card companies and electronic payment gateway operators (PG companies) also temporarily hold customer money and provide payment services, but they are not subject to separation of finance and commerce regulations. So questions are raised about whether it is appropriate to apply bank-level regulations only to stablecoin issuers.
Third, the global trend is moving toward function-based regulation. In the past, regulations were divided by 'whether it's a bank or not,' but recently the trend is to apply regulations according to 'what function it performs.' The principle is that if you perform the same function, you should receive the same regulation. For example, if you make loans, you receive loan-related regulations; if you make payments, you receive payment-related regulations. It is reasonable to apply customized regulations that fit the functions of stablecoins.
We need wisdom to maintain the separation of finance and commerce principle while flexibly interpreting it for the digital age.
✅ Phased Approach and Realistic Compromise
Rather than creating a perfect system right away, a phased approach is realistic.
First, a plan to first involve card companies or specialized payment financial institutions. Although these are not banks, they are subject to financial regulation and have long experience operating payment systems. This includes companies like Shinhan Card, KB Kookmin Card, and Toss Payments. If they start stablecoin business, they can be as safe as banks while as innovative as tech companies. In fact, some of them are already providing digital financial services in cooperation with fintech companies.
Second, there is also a method of gradually expanding issuance limits. At first, allow only small amounts to be issued (e.g., 10 billion won), and gradually increase the limit if it operates without problems. This way, you can limit risks initially while giving opportunities to various operators. In fact, Singapore is gradually opening the stablecoin market this way.
Third, the sandbox system can be utilized. A sandbox is a system that exempts regulations under certain conditions and allows innovative services to be tested. Stablecoins can also be tried first in a sandbox, and if there are no problems, formal approval can be given. This way, regulatory authorities can identify risks, and companies can learn through trial and error.
Starting and improving while going is a more realistic approach than waiting for a perfect system.
4️⃣ In Conclusion
The stablecoin control debate goes beyond simply who issues it to the question of what strategy Korea will take in the digital finance era.
The Bank of Korea's concerns are fully understandable. Financial stability is a value that cannot be compromised, and the separation of finance and commerce principle is also an important principle to uphold. We must not forget the lessons of past financial crises. Also, preventing illegal activities like money laundering is important.
However, overly conservative regulations can block innovation and make us fall behind in global competition. In a situation where major countries like the US, Europe, and Japan are rushing to institutionalize stablecoins, if Korea alone insists on a rigid bank-centered structure, it could lose market competitiveness.
The most important thing is a balance between safety and innovation. If we can't give up both, we must find a way to keep both alive. Realistic compromises are needed, such as first involving card companies or specialized payment financial institutions, gradually expanding issuance limits, or testing through sandboxes.
What should individuals prepare for? If stablecoins are institutionalized, international money transfers and online payments will become much more convenient. However, since there may be trial and error initially, it is good to approach cautiously. It is wise to check the issuer's reliability, examine asset storage methods, and start with small amounts.
For companies, this change can be an opportunity. Especially for fintech or payment service companies, it can become a new growth engine. However, since regulations are uncertain, it is important to prepare while communicating closely with financial authorities.
The government and financial authorities must find practical solutions beyond ideological confrontation. Rather than waiting for a perfect system, it is better to start small and gradually improve. It is a realistic approach to gradually open the market while referring to cases from other countries, listening to the industry's voice, and proceeding step by step.
Ultimately, the success of stablecoins depends on institutional design. Finding the balance between safety and innovation, regulation and autonomy, banks and tech companies will determine the future of Korea's digital finance. Now is the time to find that balance.
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