[Public Voices] The Spread of USD Stablecoins and the Future Direction of Digital Currency Infrastructure

Jongryul Lee
Visiting Research Fellow, Korea Capital Market Institute
(Former Deputy Governor, Bank of Korea)

Jongryul Lee, Visiting Research Fellow at the Korea Capital Market Institute (former Deputy Governor of the Bank of Korea)

Recently, U.S. dollar-denominated stablecoins have come to dominate the global digital asset market. In response, there is a growing call in South Korea to swiftly introduce a "won-based stablecoin" to reinforce the position of the local currency and expand the country's presence in digital finance. The aim is to proactively embrace private sector technological innovation and maximize the utility of the Korean won in global payment networks. However, before such an initiative is launched, it is necessary to take an objective look at the sober realities of the global digital financial market.

First, global case studies show that regulatory reform does not immediately translate into the activation of local-currency stablecoins. Major jurisdictions—including the European Union, which enacted the MiCA regulation, as well as Japan and Australia—have established advanced regulatory frameworks. However, despite securing legal certainty, the issuance volume of stablecoins denominated in these local currencies remains less than 1%—a mere fraction—of the global stablecoin market.

The fundamental reason behind this phenomenon is the strong "lock-in effect" centered on the U.S. dollar. Both cryptocurrency exchanges and the decentralized finance (DeFi) ecosystem have built liquidity pools around the U.S. dollar (USDT, USDC) from the very beginning. Consequently, the structure naturally leads to the concentration of funds in dollar-denominated stablecoins, which offer the greatest liquidity. Furthermore, this is compounded by overwhelming market demand for the dollar as a safe asset and dominant currency in global payment networks, leaving extremely limited room for stablecoins based on other currencies.

The solution and the correct direction can be found in Chapter 3 of the Bank for International Settlements (BIS) 2026 Annual Economic Report, entitled "Anchoring Trust in Money: Innovation Beyond Stablecoins." In this report, the BIS points out the structural flaws of privately issued stablecoins. Although such coins attempt to peg their value to specific assets, there is always the risk that their redemption value may falter in the face of market shocks—a "run risk." Additionally, the fragmentation of infrastructure across multiple public blockchains limits their scalability as a payment system. The use of non-custodial wallets without proper identity verification raises concerns about financial integrity. Accordingly, the BIS proposes as an alternative the establishment of a "two-tier monetary system"—combining proven central bank reserves and commercial bank deposits with digital technology through "tokenization," and integrating them via a "unified ledger."

The strategy we should pursue is as follows. First, proactive measures must be established to address the risks associated with introducing won-based stablecoins. Sound issuance conditions must be instituted, such as safeguards against large-scale outflows and restrictions on asset management, while countermeasures are developed to protect financial integrity—such as anti-money laundering (AML) regulations—in response to the proliferation of foreign-currency stablecoins. It is also essential to establish global cooperation to prevent the unchecked expansion of stablecoins exploiting regulatory arbitrage. Second, it is necessary to promote digital innovation in financial payment systems and upgrade the public currency infrastructure. A concrete milestone is the Bank of Korea's "Project Hangang," a national infrastructure experiment inspired by the BIS's unified ledger concept. This project allows both central bank reserve tokens and commercial bank deposit tokens to operate on a single platform, and further extends smart contract-based connectivity to various tokenized assets (RWA) such as bonds and real estate—thus ensuring scalable, secure transactions.

Ultimately, the key to confronting the challenge posed by dollar-based stablecoins and safeguarding monetary sovereignty does not lie simply in issuing individual coins. Rather, the core national strategy that will define future competitiveness in digital finance is to prepare thoroughly for the adoption of stablecoins while simultaneously enhancing public financial infrastructure.

Jongryul Lee, Visiting Research Fellow at the Korea Capital Market Institute (former Deputy Governor of the Bank of Korea)

This content was produced with the assistance of AI translation services.