As digital currencies are increasingly used in cross-border transactions, the South Korean government realizes that stricter regulatory measures must be taken to ensure national financial security.
On October 8, South Korea’s Ministry of Strategy and Finance announced that in response to public criticism of the inadequate regulation of current stablecoins, they are reviewing and planning to introduce stricter policies to prevent stablecoins from becoming a potential risk in the foreign exchange market.
Stablecoins are prevalent across borders, and supervision needs to be strengthened
As stablecoins are increasingly used in virtual asset transactions and cross-border payments, the South Korean government has begun to pay attention to their growing influence in the financial system.
Local media reports indicate that the South Korean Ministry of Strategy and Finance has recognized that stablecoins may soon expand from the virtual realm to the real economy and become a mainstream payment and trading tool. Therefore, the government is developing a regulatory plan to apply stablecoins pegged to the US dollar to cross-border foreign exchange transactions.
The local Financial Services Commission (FSC) also stated that it plans to prioritize the regulation of stablecoins in the second phase of legislation for the Virtual Asset User Protection Act (VAUPA). They will also refer to the legislative experience of Japan, the European Union and other places, and conduct in-depth consultations with relevant departments.
However, the decision comes amid growing dissatisfaction among industry experts with the government’s slow response to stablecoin regulation, who believe the government is only now reviewing the law because of concerns that existing macroeconomic policies may have loopholes.
In the global capital market, the status of stablecoins is rising rapidly. Take Tether as an example. The scale of its holdings of US Treasury bonds has reached 97.6 billion US dollars, which is not far from the 18th largest country in the world, South Korea, which holds 116.7 billion US dollars in Treasury bonds. This phenomenon has forced the South Korean government to consider imposing strict foreign exchange controls on stablecoin transactions.
In light of this, a government official revealed that South Korea’s stablecoin regulation will begin with the establishment of a currency issuance system pegged to the won, marking an important step forward in South Korea’s digital currency regulation.
The regulatory framework is slightly behind compared to other countries
In contrast to South Korea's approach, the European Union and Japan have established strict regulatory rules for stablecoins through legislation such as the Cryptocurrency Market Act (MiCA). These rules not only require that at least 30% of customer deposits must be kept in external accounts to ensure the stability of funds, but also require exchanges to record all cross-border transactions in detail.
Following closely, countries such as the United States, the United Kingdom, and Australia are also actively building similar regulatory frameworks. Not to be outdone, South Korea is also drawing on international experience to formulate its own regulatory system. A significant change in South Korea's new regulatory framework is the relaxation of restrictions on companies holding virtual asset accounts and plans to include stablecoin transactions in official statistics.
This year, South Korea introduced the Virtual Asset User Protection Act (VAUPA), requiring cryptocurrency exchanges including Upbit and Bithumb to pay regulatory fees based on their operating income from 2025.
The bill also stipulates that exchanges must store at least 80% of user assets in cold wallets to ensure asset security. In addition, the bill also requires exchanges to regularly review listed assets and remove assets that do not meet the standards to protect the interests of investors.
Conclusion:
From the transaction of virtual assets to the means of payment in the real economy, stablecoins have both potential and risks. The new regulatory trend in South Korea is not only to maintain domestic financial stability, but also a response to global financial regulatory trends.
By aligning with international standards, South Korea is striving to find a balance between innovation and security to ensure the healthy development of digital currencies and protect investors' interests.
