South Korea to implement stablecoin foreign exchange regulations, taking reference from the precedents set by the EU and Japan to introduce stablecoin legislation.

According to local media reports, the South Korean government has begun planning to implement foreign exchange controls on stablecoins. This move is in response to the increasing use of stablecoins, particularly those pegged to the U.S. dollar and utilizing blockchain technology, in trade activities. These digital currencies are seeing growing adoption in international trade and operating outside of traditional regulatory frameworks. The government's actions indicate that cryptocurrencies have indeed gained a significant foothold in the country.

Regulation of Stablecoins to Become Focus of South Korean Regulation, Cracking Down on Underground Trading

South Korea aims to mitigate the risks associated with stablecoins when they expand beyond their function as a payment tool and into the broader cryptocurrency ecosystem. In the cryptocurrency ecosystem, stablecoins primarily serve as a medium of exchange.

The country's regulatory authority, the Financial Services Commission (FSC), announced that the regulation of stablecoins will be a focus of the second phase of the "Act on the Reporting and Use of Specified Financial Transaction Information." This phase will reference regulations in other regions such as the European Union and Japan, where laws related to stablecoins have already been implemented.

South Korea officially enforces the "Act on the Reporting and Use of Specified Financial Transaction Information," with a one-year grace period for VASPs.

Critics have pointed out that the government's delay in addressing the increasing use of stablecoins in trade has led to regulatory loopholes. Concerns have been raised that unregulated capital flows could pose a potential threat to monetary sovereignty and the broader financial system.

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Following the EU and Japan, Will South Korea Also Introduce Stablecoin Legislation?

In contrast to South Korea's gradual approach, the EU and Japan have swiftly announced regulatory frameworks. The EU's Markets in Crypto-Assets Regulation (MiCA) allows financial institutions to issue stablecoins, while Japan recognizes stablecoins as a payment method and requires large transactions to comply with foreign exchange reporting rules.

Reports suggest that the South Korean government is also considering enacting laws to regulate the issuance of stablecoins pegged to the Korean won. Additionally, the government is expected to relax restrictions on companies holding cryptocurrency accounts, a regulation that has faced criticism from local industry professionals.