Bank of Korea warns stablecoins could increase won volatility

The Bank of Korea has warned that allowing increased participation by foreign investors and corporations in the domestic virtual asset market could heighten volatility in the foreign exchange market. According to a report titled ‘BOK Issue Note: Linkage between Dollar Stablecoins and Foreign Exchange Markets’, the integration of stablecoins and fiat currencies can directly impact currency values.

Analyzing data from 12 currencies on global exchanges like Binance, researchers found that when global intermediaries such as liquidity providers participate, demand for dollar-denominated stablecoins can lead to a depreciation of the local currency. While the South Korean won is not currently listed on Binance, the report noted that South Korea’s dollar stablecoin premium ranks fifth highest among 30 analyzed countries at 1.67%, trailing only South Africa, Ukraine, Zambia, and India.

The Bank of Korea suggests that as the market structure evolves, digital asset regulations should be designed in conjunction with foreign exchange market improvements and the internationalization of the won to mitigate potential shocks.