The South Korean government has outlined plans to impose foreign exchange regulations on cross-border stablecoin transactions, addressing the increasing use of these digital currencies in international trade, local media reported on October 8.
The move comes in response to the growing role of stablecoins, particularly those pegged to the US dollar, in trade activities beyond traditional regulatory frameworks.
Stablecoin regulation
The Ministry of Economy and Finance has announced its intention to stabilize the increase in cross-border cryptocurrency transactions, including stablecoins.
The authorities aim to mitigate the risks that may arise from the expansion of the virtual asset ecosystem beyond its functionality as a payment tool, which has primarily been used as a medium of exchange.
The Financial Services Commission (FSC) has announced that the second phase of the Virtual Asset User Protection Act will focus on stablecoin regulation. At this stage, regulations in other regions such as the European Union (EU) and Japan, which already have stablecoin laws in place, will also be taken into account.
Stablecoins have gained significant influence in global financial markets. Tether, the largest issuer of stablecoins, holds a significant amount of US Treasuries to back its USDT stablecoin, with reserves close to those held by South Korea itself.
Critics say that governments have been slow to respond to the growing use of stablecoins in trade, creating regulatory gaps. Concerns have been raised about the potential threat that unregulated capital flows could pose to monetary sovereignty and the broader financial system.
other approaches
In contrast to South Korea's gradual approach, both the EU and Japan introduced regulatory frameworks quickly. The EU's Market for Cryptocurrency (MiCA) regulations allow financial institutions to issue stablecoins, but Japan allows stablecoins as a means of payment and foreign exchange reporting rules apply for large-scale transactions. Applicable.
South Korean authorities are also considering developing a legal framework for issuing stablecoins pegged to the Korean won. This will establish the necessary foundation to regulate stablecoins linked to both domestic and foreign currencies.
Additionally, the government is expected to ease regulations on companies holding crypto accounts, a move that has been criticized by industry leaders. By allowing businesses to participate in stablecoin-based transactions, governments can record these transactions in official statistics and provide a more accurate picture of the economic situation.
Other countries, including the US, UK, and Australia, are also working on legislation to regulate stablecoins. South Korea plans to draw on these international precedents to develop its own robust regulatory system for stablecoin transactions.
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