South Korea Eyes Central Bank Deposits for Stablecoin Reserves
TLDR
- The Bank of Korea has proposed requiring stablecoin issuers to deposit their reserve assets at the central bank.
- This measure aims to mitigate risks associated with sudden redemption surges and uncontrolled growth in the money supply.
- Stablecoin issuers currently earn profits by investing reserves in risk-free assets such as government bonds.
- The BOK’s proposal would limit issuers’ returns to policy-rate levels to ensure better control.
- A full reserve model is being suggested, requiring issuers to deposit 100% of liabilities in safe assets.
The Bank of Korea (BOK) has proposed a new regulation requiring issuers of won-based stablecoins to deposit reserve assets at the central bank. This proposal, presented to the National Assembly’s finance committee on October 1, comes ahead of the government’s draft bill on stablecoins. The aim is to tighten control and prevent private issuers from making excessive profits from seigniorage.
Bank of Korea Plans Oversight for Stablecoin Reserves
The BOK has expressed concerns about the potential risks tied to stablecoin issuance. According to the bank’s proposal, reserve assets should be held directly at the central bank. This measure would address issues related to sudden surges in redemption requests and uncontrolled growth in the money supply.
In its submission, the BOK explained that stablecoin issuers earn profits by investing their reserves in safe assets, such as government bonds. By requiring deposits within the central bank, issuers’ returns would be limited to policy-rate levels. This policy aims to mitigate risks while enhancing oversight. The bank argued that such a move would strengthen user confidence and safeguard the system from potential instability.
Policy Change Could Impact Profitability of Issuers
The BOK’s proposal could reduce the profitability of stablecoin issuance in South Korea. If the rule is implemented, it may discourage non-bank players from issuing stablecoins. The bank emphasized that this tradeoff is necessary for greater stability, particularly as stablecoins become more widely adopted.
The BOK also supports a complete reserve model. Under this model, issuers would need to deposit 100% of their liabilities in safe, government-approved assets. This would be similar to existing rules for prepaid payment instruments. Furthermore, the BOK suggested creating a policy council to define what assets are eligible as reserves.
The BOK highlighted the importance of a regulated environment for stablecoin issuance. It proposed that initial issuance should come from consortia led by banks. These banks should have a strong compliance capacity, which helps reduce risks such as regulatory arbitrage. This step is crucial before allowing broader market participation.
The post South Korea Eyes Central Bank Deposits for Stablecoin Reserves appeared first on CoinCentral.
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