Bank of Korea Governor Lee Chang-yong said South Korea will allow its residents to invest in virtual assets issued abroad, but warned that regulation of digital finance should be strengthened rather than eased despite market pressure.
New Regime Considered for Domestic Issuers
Speaking at the Asian Financial Forum in Hong Kong, Lee said financial authorities are now studying a new registration regime that would allow domestic institutions to issue virtual assets under local oversight. The move is aimed at bringing some of the activity onshore while maintaining control over risks, he said.
Different Roles for Stablecoins and Tokenized Deposits
Lee drew a distinction between different types of digital money, saying he expects won-denominated stablecoins to be used mainly for cross-border transactions, while tokenized deposits are more likely to be adopted for day-to-day domestic payments.
Stablecoins Seen as a Threat to Capital Controls
Even so, he cautioned that stablecoins remain controversial, as won-linked stablecoins could be used to bypass existing capital flow management measures, particularly if used alongside U.S. dollar stablecoins. Since dollar-based stablecoins are already widely used, easy to access, and cheaper to transfer than U.S. dollars in the traditional banking system, they could attract large volumes of funds when exchange rate moves shift market expectations, potentially triggering sizeable capital movements, he added.
Lee also noted that stablecoins are often issued by non-bank entities, making them harder to monitor and supervise. That fragmentation complicates regulation and increases the challenge for policymakers seeking to maintain financial stability, he said.
Limited Case for Retail CBDC in Korea
Turning to central bank digital currencies, Lee argued that South Korea’s existing fast payment infrastructure is already highly developed, limiting the benefits of a retail CBDC for consumers. Instead, the central bank is running multiple pilot projects focused on tokenized deposits and wholesale CBDCs, with the goal of preserving a two-layer system in which commercial banks remain central to the provision of money and credit.
Governor Warns Against Weakening Rules
On the broader regulatory debate, Lee said loosening rules can give a temporary lift to real economic activity, but warned against ignoring the lessons of the 2008 global financial crisis. He said regulatory reform should not become a race to the bottom, and that in the specific area of digital finance, the priority should be to reinforce oversight rather than ease it.
