South Korea’s Stablecoin Legislation: A Political Tug-of-War
In the realm of cryptocurrency, South Korea finds itself at a critical juncture as the Democratic Party of Korea (DPK) and the People Power Party (PPP) engage in a legislative battle over the regulation of stablecoins. These digital assets, tied to the Korean Won (KRW), are at the heart of two conflicting bills introduced in the National Assembly. The crux of their disagreement lies in a pivotal aspect, setting the stage for a significant political discourse.
Divided Stance in the National Assembly
On a recent Monday, South Korea’s political landscape was marked by the introduction of two rival bills aimed at establishing a regulatory framework for KRW-pegged digital currencies. The DPK, represented by Ahn Do-gil, unveiled the “Act on the Issuance and Distribution of Value-Stable Digital Assets.” Concurrently, Kim Eun-hye of the PPP proposed the “Act on Payment Innovation Using Value-Fixed Digital Assets.” This legislative move underscores the ongoing efforts to institutionalize the burgeoning digital asset sector in the nation.
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While both bills exhibit commonalities, such as assigning oversight responsibilities to the Financial Services Commission (FSC), distinct differences emerge. The FSC would be empowered to regulate the issuance, distribution, and redemption of stablecoins, with the authority to implement emergency measures in response to potential market disruptions. Issuers would also be mandated to submit comprehensive white papers to the FSC, detailing essential aspects like issuance limits, distribution strategies, reserve asset structures, and redemption methods.
Additionally, the Ministry of Economy and Finance, in collaboration with the Bank of Korea (BOK), would have the prerogative to request data from the FSC or conduct joint inspections to ensure foreign exchange market stability and effective monetary policy implementation. The DPK’s proposal also advocates for the formation of a “Value Stability Digital Asset Committee,” encompassing the Ministry of Economy and Finance, the BOK, and the FSC, to deliberate on related policies.
Debate Over Interest Payments
A significant point of contention lies in the treatment of interest payments. The PPP’s legislation allows for interest payments, citing potential incentives for using KRW-pegged stablecoins internationally. In contrast, Ahn’s bill seeks to prohibit interest payments altogether, aiming to mitigate market disruptions. Industry stakeholders have called for a tailored approach to KRW-based stablecoins, arguing that non-U.S. countries could design their systems in accordance with national regulations.
Financial Sector Anticipates Regulatory Clarity
Amid the growing momentum surrounding stablecoins, Min Byeong-deok, a DPK member, has proposed comprehensive legislation to establish a more cohesive regulatory framework for crypto assets in South Korea. However, BOK Governor Lee Chang-yong has expressed concerns about the potential issuance of KRW-pegged stablecoins by non-bank entities, fearing potential confusion in monetary policies and foreign exchange regulations.
Financial institutions in South Korea are preparing for various scenarios regarding the legalization of stablecoins, as it remains uncertain whether non-bank entities will be permitted to issue these digital assets. As reported by industry insiders, the sector is exploring a business model where banks form joint ventures to collectively issue stablecoins, while engaging with non-bank companies in preparation for the forthcoming regulatory landscape.
Credit Card Industry Eyes New Opportunities
The credit card industry in South Korea is proactively positioning itself in the KRW stablecoin market. According to reports, the Credit Finance Association, along with eight prominent credit card companies, is preparing to file for trademark rights under the tentative name “CARD KRW.” These companies, including Shinhan, Hyundai, Samsung, KB Kookmin, Lotte, Woori, Hana, and BC Card, aim to play a pivotal role in the stablecoin ecosystem, capitalizing on the familiarity of card payments for consumers.
As stablecoins become more mainstream, credit card companies anticipate facilitating seamless transactions for consumers, ensuring that stablecoin payments integrate smoothly with existing card payment systems.
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