South Korea is taking steps to regulate stablecoin transactions, particularly those involving cross-border trade. This move aims to address the increasing use of stablecoins, such as those pegged to the US dollar, in international transactions, which have been operating outside traditional regulatory frameworks.
The Ministry of Economy and Finance in South Korea plans to implement foreign exchange regulations to stabilize the growing number of stablecoin transactions. These regulations are intended to mitigate risks associated with stablecoins being used as a payment tool beyond the virtual asset ecosystem. The Financial Services Commission (FSC) has identified stablecoin regulation as a key focus in the second phase of the Virtual Asset User Protection Act, taking inspiration from stablecoin laws in the EU and Japan.
Stablecoins, led by major issuer Tether, have gained significant influence in global financial markets. However, critics have raised concerns about regulatory gaps and potential threats to monetary sovereignty and the broader financial system due to the delayed government response in addressing stablecoin usage in trade.
In contrast to South Korea’s gradual approach, the EU and Japan have already implemented regulatory frameworks for stablecoins. The EU’s MiCA regulation allows financial institutions to issue stablecoins, while Japan treats stablecoins as a recognized form of payment subject to foreign exchange reporting rules for large transactions. South Korea is also considering developing a legal framework for issuing stablecoins tied to the Korean won to regulate stablecoins linked to both domestic and foreign currencies.
Furthermore, South Korea is expected to ease restrictions on companies holding crypto accounts to allow them to engage in stablecoin-based trade. This regulatory change would enable the government to capture these transactions in official statistics, providing a more accurate economic overview. Other countries, including the US, the UK, and Australia, are also working on legislation to regulate stablecoins, and South Korea aims to draw from these international examples to establish a robust regulatory system for stablecoin transactions.
Overall, South Korea’s new regulations on stablecoin transactions reflect a growing recognition of the need to address the challenges posed by the increasing use of stablecoins in international trade. By implementing foreign exchange regulations and potentially developing a legal framework for issuing stablecoins tied to its national currency, South Korea aims to create a more secure and regulated environment for stablecoin transactions, aligning with international efforts to regulate these digital assets.