Before a won-pegged stablecoin, Korea needs won internationalization

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Before a won-pegged stablecoin, Korea needs won internationalization

Published: 30 Jul. 2025, 00:02

Audio report: written by reporters, read by AI

Park Sun-Young

The author is a professor of economics at Dongguk University.

Korea’s National Assembly is actively debating legislation on stablecoins. The push comes as major economies, including the United States, Japan and the European Union, have moved to clarify regulations on digital assets pegged to legal tender. In the United States, the GENIUS Act recently established a clearer legal framework for stablecoins, reinforcing the view that Korea must align with global standards.

Yet, Korea faces a key distinction. The won is not a reserve currency like the U.S. dollar, the Japanese yen or the euro. It is also not traded as a spot currency in offshore foreign exchange markets, which operate outside a country’s borders in hubs like London, New York and Singapore. These global markets allow reserve currencies to trade freely around the clock. The won, by contrast, can be exchanged only within Korea during fixed trading hours through designated institutions. This restricted convertibility is one reason Korean equities have yet to be included in the MSCI Developed Markets Index.

US President Donald Trump displays the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act), which codifies the use of stablecoins — cryptocurrencies pegged to stable assets like the U.S. dollar or U.S. bonds — after signing it in the East Room of the White House in Washington on July 18,. [AFP/YONHAP]

If a won-based stablecoin were to circulate globally, it would allow 24-hour access to the won for purchases or exchanges anywhere in the world. This could effectively undermine the government’s current system for managing foreign exchange markets. The central question is not whether Korea should allow a won-pegged stablecoin but rather what ripple effects it would have on currency policy in the absence of a truly internationalized won.

According to a report by Lee Seung-ho, a senior research fellow at the Korea Capital Market Institute, currency internationalization occurs when a nation’s currency functions abroad as a means of payment, a store of value and a unit of account. Data from the Bank for International Settlements shows that in 2022, the U.S. dollar accounted for about 50 percent of international trade settlement, the euro 22 percent and the yen 6 percent. The same pattern appears in global foreign exchange reserves: roughly 60 percent in dollars, 20 percent in euros and 3 percent in yen. Together, they form the three dominant global currencies. The Korean won, by comparison, remains negligible worldwide, with its usage estimated below 1 percent and not even reported separately in most global statistics.

Partial internationalization is possible, as seen with the Australian, Singaporean and Hong Kong dollars, which are treated as convertible currencies in global markets. The won, however, cannot be traded offshore, and financial products linked to it remain inactive internationally. Korea has long debated the merits and risks of internationalizing the won, but progress has been limited since the 1997 Asian financial crisis left a deep-seated fear of sudden capital flight.

Skeptics of won internationalization cite three main risks. First, making the won freely tradable could invite speculative attacks by nonresidents and increase exchange rate volatility. Second, offshore markets could fragment the government’s ability to monitor currency flows and undermine its control over foreign exchange policy. Third, internationalization could erode the effectiveness and autonomy of Korea’s monetary policy.

Allowing the issuance and circulation of a won-based stablecoin would, in effect, create a 24-hour offshore trading market for the won — the very step that internationalization seeks to achieve. Logically, it would be prudent to internationalize the won first or, at minimum, pursue stablecoin adoption in tandem with that process. If digital won trading expands in an unregulated global crypto market while the currency remains nonconvertible, the risk of exchange rate volatility could grow.

An offshore won stablecoin price could quickly emerge as a leading indicator of the domestic exchange rate. Global investors could trade the won via stablecoins in response to events outside Korea’s time zone, from U.S. Federal Open Market Committee decisions to geopolitical shocks. Those price movements could set expectations for the next day’s onshore exchange rate, potentially weakening the government’s capacity to stabilize the market.

Rep. Min Byung-deok of the Democratic Party speaks about a global digital finance strategy through the introduction of a won-based stablecoin during a forum titled “Economy with the Democratic Party: Tasks for Achieving the KOSPI 5,000 Era – Finance Session” at the National Assembly Members’ Office Building in Yeouido, Seoul, on July 22. [YONHAP]

Regulatory alignment is also critical. Korea’s Foreign Exchange Transactions Act must adapt to include virtual assets such as stablecoins. Rep. Choi Eun-seok’s proposed amendment notes that the absence of clear regulation and monitoring has fueled illegal foreign exchange transactions and money laundering. In the past four years, virtual asset–related cases have accounted for more than 80 percent of detected foreign exchange crimes.

Korea must carefully weigh the macroeconomic costs and benefits of a won stablecoin and design operating rules that align with both monetary and foreign exchange policy. A framework that integrates stablecoins into the existing legal and financial architecture could allow Korea to embrace digital finance while protecting market stability. If approached strategically, this challenge could provide an opportunity to safeguard financial security and lay the foundation for future won internationalization.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.