Overview of the Situation in Korea
Korea’s monetary authority has decided to pause its development of a central bank digital currency, focusing instead on private sector stablecoins. This shift may dampen any expectation for strong interest in won-backed digital currencies.
Key Points
- South Korea’s central bank digital currency pilot has been paused to encourage private stablecoin development.
- The non-internationalized nature of the won and strict domestic trading rules pose challenges for a potential stablecoin.
- Taiwan’s similar stablecoin framework imposes limitations that could restrict the usability of NTD-pegged tokens, mirroring challenges faced by the proposed KRW stablecoin.
Market Implications
The choice to focus on stablecoins comes amid efforts to extend foreign exchange trading hours and increase international participation in the Korean market. A regulated won stablecoin could enhance the relationship between banking and digital assets.
However, it’s crucial to note that Korea’s currency doesn’t support full internationalization. With every won transaction needing local settlement, foreign institutions will face limitations.
The Challenge of Usage
Creating a stablecoin solely used by verified domestic addresses could restrict its utility, raising the question of its necessity when bank transfers are already swift and frictionless.
Moreover, the lack of cross-border service capability could hinder a stablecoin’s attractiveness, especially compared to potential alternatives from currency systems like Hong Kong, which have fewer restrictions on global use.
Conclusion
In summary, the development of stablecoins in Korea faces significant hurdles due to both regulatory constraints and market dynamics. It remains to be seen how private sector initiatives will reshape the digital currency landscape in the region.
