National Assembly Report: "Stablecoins Should Start with Banks... Non-Bank Capital of 50 Billion Won"

Example image of Korean won stablecoin. Source=AI generated

A report from the National Assembly's Financial Services Committee suggests that the issuance of stablecoins should first be institutionalized around banks, and then gradually expand to non-bank entities such as big tech and fintech.

The report also proposed that if non-banks were to issue stablecoins, they would be required to have a capital of at least 50 billion won. This requirement is ten times the upper limit of 5 billion won set in previously proposed legislation.

According to the final report of the policy research titled 'Institutionalization of Stablecoin Payment Systems and Differentiation from Traditional Payment Methods,' commissioned by the National Assembly's Financial Services Committee to the Korean International Finance Association, the researchers proposed a phased opening of Korean won stablecoins from banks to non-banks.

The report was prepared in May. Participating in the research were Professor Kim So-young from Seoul National University's Department of Economics and Professor Park Sun-young from Dongguk University's Department of Economics. Professor Kim has previously served as the vice-chairman of the Financial Services Commission.

The report suggested a 'phased hybrid model' for the introduction of Korean won stablecoins. In the first phase, stablecoins would be issued primarily by banks, and regulations for foreign currency stablecoins would be established. In the second phase, the issuance would be expanded to licensed big tech and fintech companies.

Specifically, in the first phase, banks and bank consortiums would issue Korean won stablecoins, borrowing the concept of synthetic central bank digital currency (sCBDC) to explain the structure. sCBDC is a concept devised by the International Monetary Fund (IMF) that refers to a model where "regulated private issuers fully collateralize tokens with central bank reserves." The report views the structure where banks issue Korean won stablecoins collateralized 100% by Bank of Korea reserves as a direct implementation of sCBDC. It assessed that this approach has significant policy value as a third way to preserve monetary unity without the Bank of Korea directly issuing retail CBDCs.

In the second phase, the issuance would be expanded to non-bank financial institutions with a capital of over 50 billion won. This amount is ten times the capital limit of 5 billion won set in the digital asset basic law proposed in the National Assembly. Initially, the minimum capital for the establishment of internet-only banks, which was 25 billion won, was also mentioned, but the maximum in the bills was set at 5 billion won. The report set the capital requirement at 50 billion won, referencing the regulatory level of the European Union's Markets in Crypto-Assets (MiCA) for important electronic money tokens (EMT).

The report also presented a timeline for establishing a bank-led issuance system by 2026-2027 and expanding participation from licensed big tech and fintech companies after 2028. The intention is to first secure stability through banks and then gradually widen the scope for private participation as regulatory experience accumulates. The report described this as an appropriate approach of "initial bank-led → defined path for licensed fintech expansion."

Specific regulations for reserve assets were also proposed. It suggested that 100% of the issuance amount be held as reserve assets, with eligible reserve assets limited to Korean government bonds and monetary stabilization securities with a residual maturity of 90 days or less, demand deposits, and Bank of Korea repurchase agreements (RPs). To prevent concentration of reserve assets in specific financial institutions, a single financial institution concentration limit of 40% was set, and monthly certifications by the CEO and CFO, as well as monthly verifications by registered accounting firms, were required. The proposal also included a principle that prohibits the provision of collateral for reserve assets or their reuse.

For redemptions, it was suggested that bank-issued stablecoins be redeemable within the same day to one business day (T+0 to T+1), while non-banks should complete redemptions within two business days (T+2). If a large-scale redemption request exceeding 10% of the issuance balance occurs within 24 hours, it should be immediately reported to the Bank of Korea and the Financial Services Commission, and the issuer should not be allowed to suspend redemptions on its own. The report also proposed that holders of stablecoins should be prioritized for repayment over general creditors in the event of the issuer's bankruptcy.

It was also noted that the user protection systems for tokenized deposits and stablecoins should be distinguished. Tokenized deposits would be subject to the same depositor protection laws as existing deposits, while payment stablecoins would be excluded from deposit insurance and a separate protection fund would be established. The report proposed a separate protection fund with a limit of 100 million won per person for payment stablecoins.

The report identified the revision of foreign exchange regulations as a key task necessary before the issuance of Korean won stablecoins. It defined the amendment of the Foreign Exchange Transactions Act as the "first line of defense" and the enactment of the Digital Asset Basic Act as the "second line of defense." It proposed to define cross-border value transfers of virtual assets (digital assets) as a separate type distinct from foreign exchange, external payment methods, and existing capital transactions, and to impose a pre-registration obligation on virtual asset service providers (VASPs) handling cross-border digital asset transactions. It also suggested that transaction dates, amounts, types of digital assets, and sender/receiver information be reported to the Bank of Korea monthly.

Similar content is being reflected in the Foreign Exchange Transactions Act, which is set to be implemented in December. The amended law defines businesses engaged in cross-border digital asset transfer as "virtual asset transfer operators" and requires them to pre-register with the Minister of Economy and Finance. It also mandates that records of cross-border digital asset transfers be reported through the Bank of Korea's foreign exchange computer network.

The report emphasized that the approach to Korean won stablecoins should not be limited to simple payment innovation. South Korea is already ranked fifth in the world in real-time payment processing volume with 9.1 billion transactions in 2023, and the cash share in offline payments is only 7%, indicating that the additional utility of blockchain in retail payments is limited. Instead, it sees greater potential for applications in international remittances, wholesale settlements, and programmable finance.

The report stated, "South Korea's response to stablecoins is not about promoting payment innovation but about defending monetary sovereignty," emphasizing that the system should first be established around banks and then gradually expand fintech participation based on regulatory experience.

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