National Assembly Budget Office: "Korean Won Stablecoin Could Save Up to 5 Trillion Won in Payment Costs... Regulation of Reserve Assets is Necessary"

Cost Savings of Up to 5 Trillion Won by Replacing Card Payments

The National Assembly Budget Office has analyzed that if a Korean won-based stablecoin replaces credit card payments, it could reduce annual payment transaction costs by over 5 trillion won.

However, it warned that the outflow of bank deposits and the risk of large-scale redemptions could lead to instability in the financial market, suggesting that regulatory measures for reserve assets should be established alongside the introduction of the Korean won stablecoin.

In its economic issue analysis report No. 109 titled "Impact and Implications of Stablecoins on the Financial Market," published on the 8th, the National Assembly Budget Office analyzed the economic benefits and financial market impacts of introducing a Korean won stablecoin and proposed related legislative directions.

According to the report, the global market capitalization of stablecoins grew to approximately $312.3 billion as of July. Among these, dollar-based stablecoins account for 98.8% of the total, and their usage has expanded from digital asset trading and exchange liquidity management to international remittances, business-to-business (B2B) payments, and peer-to-peer (P2P) transfers.

In South Korea, a Korean won-based stablecoin has not yet been introduced, and transactions are primarily conducted using dollar-based stablecoins. Discussions are ongoing in the National Assembly regarding the establishment of a basic law that includes the issuance, distribution, and regulation of digital assets, including stablecoins. Currently, nine bills related to stablecoins have been proposed in the National Assembly.

Key issues include issuance qualifications and licensing requirements, reserve asset and capital standards, user protection and information disclosure obligations, and the division of roles among supervisory agencies. The discussion also includes whether to allow interest and compensation for holders and how to regulate stablecoins issued abroad within the country.

Korean Won Stablecoin Could Save Up to 5 Trillion Won in Payment Costs

The National Assembly Budget Office analyzed that if a Korean won stablecoin partially replaces existing credit card payments, it could reduce payment transaction costs for merchants. Based on last year's domestic payment card usage, the annual cost savings effect is estimated to be between 370 billion won and 5.15 trillion won.

The scale of savings varies depending on the fee rates of cards and stablecoins, as well as the replacement rate of credit card payments. In a baseline scenario applying a card fee rate of 1.3% and a stablecoin fee rate of 0.3%, it is estimated that replacing 5% of credit card payments could save 610 billion won, 10% could save 1.23 trillion won, and 30% could save 3.68 trillion won.

In an optimistic scenario applying a card fee rate of 1.5% and a stablecoin fee rate of 0.1%, the savings for a 30% replacement rate increased to 5.15 trillion won.

This cost reduction lowers the fee burden for merchants, but the report explains that it could act as a factor for reduced fee revenue for card companies.

"Risks of Bank Deposit Outflow and Coin Runs Must Be Considered"

The analysis also pointed out that the introduction of a Korean won stablecoin does not only bring benefits. The report evaluated cross-border remittances and trade payment cost reductions, as well as automation of inter-company transactions and settlements using smart contracts as major opportunities for the Korean won stablecoin through a SWOT analysis.

On the other hand, it identified risks such as the weakening of financial intermediation due to bank deposit outflows, the sale of reserve assets due to large-scale redemptions, and de-pegging from the face value. It also noted the possibility of a "coin run" where users demand large-scale redemptions in a short period if trust in stablecoins weakens.

Currently, the impact of stablecoins on traditional financial markets is limited, but it has been confirmed that interconnections could increase if market instability grows. Price fluctuations of Tether (USDT), USD Coin (USDC), Bitcoin (BTC), the won-dollar exchange rate, KOSPI, and government bond rates could influence each other. The inter-market impact significantly increased from February to early March when Bitcoin prices fell and the conflict between the U.S. and Iran escalated.

In particular, the influence between stablecoins and the foreign exchange market appeared to be relatively larger than the relationship with other financial markets. The report suggested that if the use of dollar-based stablecoins expands, it could act as an additional volatility factor in the financial market.

However, it also pointed out that the current payment and settlement functions of stablecoins are not yet generalized and that the analysis was focused on dollar-based stablecoins.

"Principle of 100% or More Reserve Assets... Consideration for Designating Important Stablecoins"

The National Assembly Budget Office proposed policy directions for the introduction of a Korean won stablecoin, including improvements to digital financial payment infrastructure, gradual regulatory improvements to secure monetary sovereignty, and the establishment of a stabilization system for the stablecoin market.

As a micro-stability measure, it suggested that, referencing the cases of the United States and the European Union (EU), regulations should be established to require reserve assets to be held at a minimum of 100% of the issuance amount, and detailed criteria for the composition of reserve assets such as cash and short-term government bonds should be developed.

If compensation for the use of stablecoins is allowed, it also recommended that measures be considered to regulate the upper limit of compensation rates and the scope of application, taking into account competition with the existing financial industry and the potential for excessive issuance.

At a macro level, it proposed designating stablecoins used above a certain level as "important stablecoins." Similar to the EU's Markets in Crypto-Assets Regulation (MiCA), it would designate important tokens based on user numbers and transaction volumes, applying stricter capital and liquidity regulations than for general tokens.

The National Assembly Budget Office stated, "It is necessary to consider that important stablecoins could act as factors of instability in the financial market by influencing government bond rates, exchange rates, etc."

Additionally, it suggested that in preparation for the possibility of increased volatility between stablecoins and the financial market due to domestic and external economic shocks, it is necessary to carefully consider including important stablecoins in the market stabilization measures of financial and monetary authorities.

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