Can South Korea’s Financial Sector Maintain Stability Amid the Shift from CBDCs to Stablecoins?

South Korea’s financial sector is at a crossroads. The Bank of Korea has temporarily suspended its central bank digital currency (CBDC) trials, redirecting focus toward the regulation and adoption of won-backed stablecoins.

This shift comes amid a surge in market demand and political momentum for digital assets, raising concerns about the sector’s stability and the country’s digital currency strategy.

What Is Driving the Sudden Shift from CBDCs to Stablecoins

The suspension of CBDC trials is not an isolated decision. Participating banks cited high operational costs, unclear commercialization plans, and a preference for stablecoins as key factors.

Meanwhile, President Lee Jae-myung’s administration is pushing to liberalize stablecoin issuance, lowering barriers for companies to enter the market.

This policy pivot is reshaping priorities across South Korea’s financial institutions, with eight major banks now collaborating to launch a won-pegged stablecoin by 2026.

Did you know?
South Korea’s eight major banks are forming the country’s first joint venture to issue a won-pegged stablecoin, targeting global payments and Web3 finance, and aiming to reduce reliance on foreign digital currencies. This project is expected to launch by late 2025 or early 2026, pending regulatory approval.

How Will South Korea’s Regulatory Framework Adapt to the New Reality

The Digital Asset Basic Act, proposed by the ruling party, aims to establish a licensing system for stablecoin issuers, emphasizing consumer protection and reserve requirements.

Senior Deputy Governor Ryoo Sang-dai of the Bank of Korea has called for a cautious, phased rollout of stablecoins, led by regulated commercial banks to ensure financial stability.

This approach seeks to balance innovation with risk management, addressing concerns about capital outflows, foreign exchange liberalization, and the potential for market disruption.

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Are Banks and Investors Prepared for the Risks of a Stablecoin-Centric Future

South Korea’s financial sector is highly active in digital assets, with over a third of the population involved in crypto trading. The collapse of the Terra stablecoin and its associated Luna token was a stark reminder of the risks inherent in digital assets.

As banks shift focus to stablecoins, regulators must ensure robust consumer protections and transparent reserve mechanisms to prevent systemic shocks.

The Bank of Korea has emphasized the importance of a safety net, particularly as stablecoins could accelerate capital outflows and impact the internationalization of the Korean won.

What Does the Shift Mean for South Korea’s Global Digital Currency Ambitions

South Korea’s move toward stablecoins is not a retreat from digital currency innovation but a strategic realignment. By prioritizing regulated, bank-led stablecoins, the country aims to foster a robust digital currency ecosystem that could eventually integrate with a future CBDC.

This approach positions South Korea to potentially lead in fiat-backed stablecoin adoption in Asia while maintaining flexibility for future central bank initiatives.