Bank of Korea warns 120% surge risks currency chaos repeat

Bank of Korea Governor Lee Chang-yong has warned that allowing multiple non-banking institutions to issue Korean won (KRW) stablecoins could lead to currency chaos similar to events in the 19th century.

Lee made the comments during a press briefing, cautioning that irresponsible issuance of won stablecoins might conflict with foreign currency exchange policies and disrupt existing banks’ profit models.

“Allowing won stablecoins irresponsibly could conflict with foreign currency exchange policies, and delegating payment and settlement services to non-banks will disrupt the profit model of existing banks.” he said, according to Yonhap News Agency.

While Lee did not specify the historical event, it likely refers to the U.S. Free Banking Era starting in 1837, when numerous banks issued competing notes, causing economic instability until a unified system was established.

The warning comes amid South Korea’s efforts to promote KRW stablecoins, a key promise of President Lee Jae Myung.

Several major payment firms and banks have submitted trademark applications for stablecoin ticker symbols.

Ruling Party lawmaker Min Byeong-deok has introduced legislation to regulate KRW stablecoins.

KakaoPay, a leading payment service provider, has seen its stock rise over 120% since June following the election of President Lee.

Last month, the Bank of Korea announced it would halt its central bank digital currency (CBDC) trial, monitoring stablecoin legislation developments instead.

Lee noted that the CBDC trial was designed with KRW stablecoins in mind from the beginning.

The coexistence of CBDCs, stablecoins, and bank deposit tokens remains uncertain, prompting the central bank to await clearer regulatory direction.

Experts warn that without clear regulatory frameworks, the rapid expansion of stablecoins by non-bank entities could undermine monetary policy effectiveness and financial stability in South Korea.