South Korea’s Stablecoin Debate Heats Up as Central Bank Warns of ‘Currency Chaos’

South Korea’s central bank has raised a red flag over President Lee Jae-myung’s push for Korean won-based stablecoins, warning of economic disorder if non-bank institutions are allowed to issue digital currencies unchecked.

Bank of Korea Governor Lee Chang-yong compared the potential fallout to the chaotic “Free Banking Era” of 19th-century America, when thousands of unregulated banknotes flooded the U.S. economy, causing widespread confusion and instability. “If we irresponsibly permit the issuance of won-denominated stablecoins by multiple players, we risk disrupting exchange rate policies and undermining the financial system,” Lee said at a press conference Thursday, according to Yonhap.

Governor Lee’s comments come amid mounting political and commercial momentum for stablecoins in South Korea. President Lee Jae-myung made support for KRW-based stablecoins a core campaign promise, sparking a wave of interest from fintech firms and traditional banks alike. Several companies have already submitted trademark applications for their proposed stablecoin tickers.

Among them, KakaoPay has emerged as a front-runner. Since the new president took office in early June, KakaoPay’s stock has skyrocketed by more than 120%, positioning the payment giant to capitalize on any favorable regulations.

Still, regulatory uncertainty looms large. A bill introduced by Ruling Party lawmaker Min Byeong-deok aims to establish a legal framework for KRW stablecoins, but central bank officials have made clear that key policy decisions are still pending coordination among government agencies.

Complicating matters further, the Bank of Korea recently announced a pause in its years-long central bank digital currency (CBDC) pilot. Though the project began in 2018, the central bank says it will now step back and observe how stablecoin regulation develops before moving forward. Lee acknowledged the CBDC pilot was originally conceived with stablecoin interoperability in mind.

“We cannot finalize a policy without clarity on which departments are involved,” Governor Lee noted, suggesting a turf war may be brewing behind the scenes.

With financial giants preparing for a stablecoin-powered future and the central bank urging caution, South Korea finds itself at a crossroads: will it lead Asia’s digital currency race — or get stuck sorting out regulatory gridlock?