South Korea’s plan to legalise a bank-led, won-denominated stablecoin is facing political resistance.

The push is deepening long-standing tensions between financial regulators, the central bank and the ruling Democratic Party of Korea (DPK) over who should be allowed to issue stablecoins under the country’s first comprehensive digital asset law.

At the heart of the dispute is capital liberalisation.

According to The Korea Times, policymakers fear that wealthy individuals could use cash to buy won-denominated stablecoins and move assets overseas, bypassing bank-mediated capital controls and taxes.

Currently, individuals can remit up to US$100,000 per year without reporting to banks.

The Bank of Korea (BOK) has consistently warned that allowing non-bank entities to issue stablecoins could trigger significant capital outflows. It says such a move would weaken the country’s ability to retain domestic wealth.

The Financial Services Commission (FSC) and the DPK had previously dismissed these concerns. They argued that opening issuance to fintech and blockchain firms would promote competition and innovation.

However, the FSC has now shifted its position, aligning with the BOK’s call for a bank-led model.

Under a revised proposal submitted to the National Assembly, regulators would initially allow only consortia to issue won-based stablecoins. Regulators would require banks to hold a controlling stake of at least 50% plus one share.

Technology firms could participate and could become the largest single shareholder. However, banks would retain overall control in the early stages.

The move has angered DPK lawmakers. Some lawmakers are expected to form a task force to draft an alternative version of the digital asset bill.

The FSC proposal also tightens oversight of crypto exchanges. It introduces financial sector-level IT stability requirements, strict liability for hacking losses regardless of fault, and fines of up to 10 percent of annual revenue.

Regulators would require stablecoin issuers to maintain at least 5 billion won in paid-in capital. Authorities have signalled they may raise the threshold as the market develops.

Regulators also point to rising overseas remittances allegedly used to evade gift taxes.

BOK data shows such transfers totalled US$12.27 billion from 2022 to August 2024, with the US, Canada, Australia and Japan as the top destinations.

Featured image credit: Edited by Fintech News Hong Kong, based on image by pranavkr via Freepik