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Nations are advancing at varying rates in the assessment or establishment of Central Bank Digital Currencies (CBDCs).

In today’s newsletter, Dr Sangmin Seo from the Kaia DLT Foundation reviews South Korea’s restricted CBDC strategy against Japan’s flexible model and its ramifications for investors.

Then, Patrick Murphy from Eightcap addresses how these developments will affect investors in ‘Ask an Expert’.

Approaches to Stablecoins in South Korea and Japan

Following the passing of the GENIUS Act in the U.S., discussions on stablecoin frameworks are escalating globally. South Korea and Japan are engaged in serious conversations on the operation of these digital currencies and the collaborative role of private entities and government in regulating them.

Differences Between Central Banks in Korea and Japan:

• A CBDC or central bank digital currency is a blockchain-enabled digital currency regulated by a central bank pegged to a traditional currency.
• A stablecoin, typically issued by private companies, aims to maintain a stable value that mirrors real-world currencies.

Japan’s Stance on CBDCs

The Bank of Japan’s firm position is that CBDCs will be exclusively for interbank transactions, while stablecoins issued by private banks can be used in B2B and B2C transactions. A new favorable regulatory framework for stablecoins has been proposed.

The Governor of the Bank of Japan, Kazuo Ueda, noted that “Stablecoins enhance small international remittances, introducing risk diversification. It will be fascinating to examine how CBDCs potentially complement this.”

South Korea’s Uncertainty

Conversely, the Bank of Korea currently holds an ambivalent view on whether private stablecoins should come under central bank control due to potential risks to the domestic currency’s stability. South Korea’s National Assembly has been proactive in promoting stablecoin legislation, with President Jae Myung Lee advocating for domestic stablecoins during the recent election campaign.

Future Implications

The interaction of governments and the private sector in controlling stablecoins will be vital, with impacts extending beyond their spheres. South Korea aims to balance the widespread acceptance of stablecoins while adhering to Web3 principles.

What Experts Say

Q: What is driving Asia’s Blockchain Integration?
Asia’s focus on blockchain represents a strategic shift, as it goes beyond the speculative aspect of cryptocurrency towards its foundational potential.

Q: What are the critical features of South Korea’s evolving regulatory framework?
This framework symbolizes a significant progression towards institutional acceptance, emphasizing stablecoin guidelines and the introduction of ETF regulations.

Keep Reading

• A recent working paper from the Central Bank of Malaysia has recognized XRP and bitcoin as prospective alternatives.
• The UAE is advancing towards the deployment of the Digital Dirham CBDC.
• The European Central Bank aims to conclude its digital euro testing by October 2025.