Seoul's Digital Currency Crossroads

South Korea Navigates the Digital Currency Crossroads
As the global landscape of digital currencies evolves rapidly, South Korea finds itself at a pivotal crossroads. The United States and China have taken divergent paths, setting the stage for a broader contest over the future of money and monetary sovereignty. This dynamic has placed increasing pressure on Seoul to define its own digital currency strategy.
On July 18, U.S. President Donald Trump signed two significant pieces of legislation that reflect Washington’s stance on digital finance. The “Genius Act” legalized privately issued stablecoins from companies like Tether and Circle, while the “CBDC Anti-Surveillance State Act” banned the creation of a central bank digital currency (CBDC). These measures emphasize a market-led approach, entrusting private entities with the issuance, circulation, and management of digital dollars.
In contrast, Beijing is firmly committed to a state-directed model. The People's Bank of China (PBoC) maintains exclusive control over its e-CNY and has prioritized CBDC development as one of its top financial goals. Recent announcements indicate plans to expand e-CNY pilot programs in Shanghai’s free trade zone, signaling a clear focus on centralized digital currency.
South Korea, however, remains indecisive. While the Bank of Korea has made progress on its CBDC initiative, the country’s political landscape has seen shifts. President Lee Jae-myung’s campaign promise to legalize stablecoins has brought attention to the American model, highlighting growing divisions within the nation’s financial sector.
Bank of Korea Governor Rhee Chang-yong has voiced concerns about the potential risks associated with private stablecoins. At a public forum in June, he warned that such coins could lead to significant “negative spillovers.” His remarks underscore the lack of consensus among policymakers in Seoul.
Jo Seoung-lae, spokesperson for the Presidential Committee on Policy Planning, noted on July 14: “There are unresolved questions. Who should be authorized to issue stablecoins? How should we align with other countries?” These questions reveal the complexity of the debate surrounding digital money.
At the heart of this discussion is the question of who should issue digital money. Central bank digital currencies (CBDCs) are backed by central banks, offering a secure form of digital money. They allow monetary authorities to maintain full control over monetary policy. However, critics raise concerns about privacy, as CBDC usage often requires real-name accounts, making transactions traceable by the state.
Stablecoins, on the other hand, provide greater flexibility and are already widely used in crypto markets. Their ability to facilitate 24/7 payments and streamline cross-border transactions has been praised as a financial innovation. Yet, their decentralized nature and regulatory ambiguity make them vulnerable to abuse. Unregulated large-scale issuance could undermine monetary policy, encourage tax evasion, and increase the risk of capital flight.
This tension between innovation and control presents a challenge for South Korea. Neither model seems entirely suitable for the country’s unique circumstances. Analysts suggest that CBDCs may face challenges in gaining domestic traction due to real-name requirements that might deter users. Additionally, South Korea’s limited currency internationalization could reduce global interest in a won-based stablecoin, affecting its viability on the international stage.
Some officials are now advocating for a compromise. Governor Rhee has proposed allowing commercial banks—not private tech firms or the central bank—to issue stablecoins. This hybrid model could combine institutional credibility with market adaptability while addressing regulatory gaps.
“Regardless of the issuer, strong collaboration between the public and private sectors will be key to creating real demand,” said an executive in the digital asset industry. “Without that partnership, any model risks falling flat.”
As South Korea continues to navigate this complex terrain, the need for a coherent and forward-thinking digital currency strategy becomes increasingly evident. The choices made today will shape the future of finance in the region and beyond.