In response to the Trump administration’s promotion of dollar stablecoins, Korean banks have decided to create a joint venture to issue a joint Korean stablecoin. The banks involved include KB Kookmin, Shinhan, Woori, NH Nonghyup, IBK Industrial, Sh Suhyup and Korea Financial Telecommunications & Clearing Institute (KFTC). KFTC operates the main retail payment systems in Korea. The only large Korean bank not mentioned is Hana Bank.
But there is a catch. Currently, Korea doesn’t have stablecoin regulations, although there are plans to produce some later in the year. Hence, the talk of launching a stablecoin this year seems slightly premature.
The initiative is being coordinated by the Open Blockchain and DID Alliance, which formally announced the creation of a stablecoin working group with these participants.
An association official said in a statement, “I understand that regulatory authorities are closely examining the institutionalization of stablecoins. We will create a trustworthy ‘stablecoin’ ecosystem through a collaboration with banks and support the revitalization of the domestic blockchain industry based on this.”
Seoul Business Daily reported an un-named banking official as saying, “If banks do not actively enter the market, the market could be formed around businesses that are difficult to control and trust. As a result, there are concerns about funds flowing out of deposits to stablecoins.”
It’s worth recalling that Korea was the launch location for the failed Terra algorithmic stablecoin, which triggered a wave of crypto bankruptcies and contributed to the collapse of the FTX crypto exchange. So it’s conceivable that Koreans may be more wary of stablecoins than others.
Korean bank stablecoin, CBDC activities
The Korean news outlet also reported that Shinhan Bank and NH Nonghyup Bank are taking part in Project Pax. This is a Japanese initiative for banks to use stablecoins for cross border payments behind the scenes. Corporates would initiate payments in the normal way, and payment instructions use the common ISO 20022 standard. But instead of routing via correspondent banks, stablecoins will be used to execute the payments.
Project Pax uses Japan’s Progmat tokenization platform, whose backers include Japan’s big three banks, MUFG, SMBC and Mizuho Bank. When Project Pax was first unveiled the three banks were mentioned as participants. However, an announcement yesterday said the sole pre-commercialization banking partner was The Shoko Chukin Bank, a specialist institution focused purely on SMEs.
Meanwhile, this month Korea has started piloting tokenized deposits using a wholesale central bank digital currency (wCBDC) for interbank settlement. One of the key drivers of the tokenized deposit initiative was a concern by the Bank of Korea that Visa or Mastercard might launch a stablecoin.
Ledger Insights Research has published a report on bank-issued stablecoins and tokenized deposits featuring more than 70 projects. Find out more here.
