South Korea suspends digital won project

South Korea's central bank has halted its digital currency pilot project, telling participating banks it will temporarily suspend discussions on the initiative, according to businesstimes.com.sg.

According to Bloomberg, citing a Bank of Korea official, the institution has decided to temporarily suspend preparations for the second phase of its pilot program to test a central bank digital currency, scheduled for the fourth quarter.

The decision comes as the trajectory of the stablecoin market has become a key item on the agenda of South Korean President Lee Jae-myung, who took office in early June. Stablecoins are a new class of cryptocurrencies whose value is strictly tied to an asset class. This can be fiat currency or another cryptocurrency, thus guaranteeing stability.

Lee Jae-myung has tried to make it possible for a wide range of companies to get involved in stablecoins. A bill proposed by the ruling party would allow firms with equity of up to 500 million won ($0.37 million) to issue won-based stablecoins.

Ryoo Sangdai, the Bank of Korea's top vice governor, said last week that any introduction of stablecoins should be phased in and led by regulated banks, with safeguards to prevent market disruption and protect consumers.

South Korea has one of the world's most active digital asset markets, which has led to massive increases in shares of companies linked to stablecoins. South Korea is already a "hotbed” of cryptocurrency activity. More than a third of the population, or about 18 million people, are active in digital asset markets. On some days, trading volume on local cryptocurrency exchanges exceeds the turnover of the Kospi and Kosdaq stock indexes.

According to the Financial Times, stocks linked to the Bank of Korea's digital currency initiatives have seen significant price swings. While shares of LG CNS Co., a South Korean technology company that provides artificial intelligence, cloud computing and systems integration services, rose about 70% in June, shares of Kakao Pay, a payment service and digital wallet, more than doubled.

Meanwhile, companies listed on the Kosdaq have seen significant moves based on their connection to stablecoins. Shares of fintech security firm Aton surged 80%, while shares of mobile game maker ME2ON tripled after its subsidiary launched a dollar-pegged stablecoin for casino apps.

Banks, brokerages and fintech companies are showing strong interest in issuing stablecoins, although the government has not set licensing requirements or timelines. "We are eager to do this business, but we are careful about the limits set by the government in terms of regulation,” a fintech executive told crypto.news.

Bank of Korea Governor Rhee Chang-yong has expressed concerns about non-bank entities issuing won-pegged stablecoins. He also cited the potential impact these coins would have on capital flows and the effectiveness of monetary policy.