Bank of Korea Governor Warns of Capital Runs from KRW Stablecoins

Bank of Korea Governor (BOK) Lee Chang-yong said at a Seoul press conference that unregulated issuance of Korean won-backed stablecoins by fintech firms or other non-banks risks mass redemptions and reduced oversight of capital movements, echoing 19th-century free-banking turmoil.

The governor warned that allowing multiple non-bank issuers of local stablecoins could enable rapid conversions into dollar-pegged tokens, straining foreign-exchange reserves. The comments were made during a BOK press briefing responding to proposals in the Digital Asset Basic Act.

Historical Parallels and Regulatory Concerns

Under the proposed legislation, non-bank firms meeting minimal capital requirements could apply for stablecoin licenses, but Lee argued that uneven oversight and capital rules would expose the won to speculative outflows and coordination failures.

He highlighted parallels to the U.S. Free Banking Era, when unregulated note issuance by private banks led to thousands of distinct banknotes traded at varying discounts, creating widespread confusion until federal standardization under the National Bank Act.

“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,” Lee said, warning that such flows would complicate the BOK’s forex management.

Legislative Framework and Risk Concerns

Under the proposed Digital Asset Basic Act, firms with minimum equity of roughly $368,000 could apply for stablecoin licenses, subject to reserve requirements and AML/CFT standards. The legislation, advanced by the ruling Democratic Party, aims to bolster the offshore won and foster domestic crypto innovation.

Regulators fear rapid issuance by undercapitalized entities could trigger “coin runs,” where mass redemptions mirror traditional bank runs, draining reserves and destabilizing the currency. Limiting issuance to banks (already under strict capital and liquidity rules) would provide a safety net against sudden outflows.

South Korea’s regulatory framework, set to take effect August 1, 2025, will require issuers to obtain licenses, maintain full fiat reserves, and adhere to stringent disclosure rules.