JPMorgan, the largest bank in the United States, is considering launching products that allow loans secured by cryptocurrency assets such as Bitcoin and Ethereum, the Financial Times reported on July 21 (local time). Jamie Dimon, the chairman of JPMorgan, who previously criticized cryptocurrency assets as a scam by saying "Bitcoin is useful only for drug dealers and murderers," stated during a conference call on July 15 that "We will be involved with both JPM Coin (JPMD) and stablecoins." The Financial Times analyzed that JPMorgan's policy change indicates a shift in the financial sector's attitude toward digital assets such as cryptocurrency.
Kakao Pay, the leading company in Korean won stablecoins, saw its stock price fall from 93,800 won on June 25 to 59,000 won on July 23, a drop of 38% within a month. Other Korean won stablecoin themed stocks also experienced a steep decline in price. Experts have issued warnings about the overheating of investments driven by the promise of issuing Korean won stablecoins. Lim Min-ho, a researcher at Shinyoung Securities, stated in a recent report that "While the dollar has global remittance demand, the Korean won does not, and to attract customers, it needs to offer interest higher than bank deposits, but when we subtract deposit interest from operational revenue, the profitability is not substantial."
U.S. President Donald Trump signed the GENIUS Act (U.S. Stablecoin Innovation Act) on July 18. This cryptocurrency bill was passed during the period designated by the House of Representatives as Crypto Week (July 14-18) and revolves around various regulations that position privately issued stablecoins as a core component of digital assets while limiting reserve assets to short-term government bonds and cash dollars and strengthening accounting reporting obligations.
The U.S. has become the first country among major nations to legalize private stablecoins, allowing not only banks but also non-bank institutions like Amazon and Walmart to issue their own stablecoins if they meet certain requirements. Boosted by this expectation, Bitcoin surpassed $120,000 on July 18, and XRP's RLUSD surged 14%, hitting an all-time high. The global cryptocurrency market capitalization also exceeded $4 trillion for the first time in history.
This trend has also impacted Korea. The Presidential Committee on Policy Planning is preparing specific implementation plans for President Lee Jae-myung's promise of issuing Korean won stablecoins, and both ruling and opposition parties are proposing related bills. 'Economy Chosun' has reviewed various strategies for stabilizing the integration of stablecoins into the real economy.
Why is the U.S. legalizing stablecoins?
Stablecoins emerged to address the limitations of using existing cryptocurrencies like Bitcoin and Ethereum, which have high price volatility, in practical applications such as payments and remittances. USDT (Tether) and USDC (Circle), digital tokens pegged one-to-one to U.S. dollar assets, are representative examples.
Dollar-based stablecoins like USDT and USDC are widely used globally due to their convenience in conversions. According to Deutsche Bank, the annual remittance volume of stablecoins is projected to reach $27.6 trillion (approximately 37,654 trillion won) by 2024, surpassing the annual payment volumes of Visa and Mastercard. The share of dollar-pegged stablecoins in the global market reaches 98.97%.
The reason President Trump, who was skeptical about cryptocurrency during his first term (2017-2020), is now pursuing the legalization of stablecoins in his second term is due to the belief that stablecoins will increase the demand for dollar assets such as U.S. government bonds, helping to maintain U.S. dollar hegemony. According to the U.S. Treasury, as of the end of June 2024, major stablecoin issuers held $167 billion in U.S. government bonds, surpassing South Korea's holdings of $122 billion. The Treasury's Bond Market Advisory Committee (TMAC) forecasts that by 2028, the market capitalization of stablecoins will increase more than eightfold to $2 trillion, generating an additional demand for $2 trillion in U.S. government bonds.
This movement is also influenced by the belief that dollar asset-backed stablecoins will strengthen U.S. financial leadership in the era of digital currency, where decentralized finance (DeFi) and blockchain technology are rapidly spreading. It is said to counter China's strategy, which aims to expand its influence in the international payment market with a digital yuan issued by the central bank. There is also an interpretation that the U.S. aimed to proactively design the 'rules of the game' for the digital currency era through the legalization of stablecoins.
Legislation for Korean won stablecoins also gaining momentum…Warnings about side effects and risks
As the U.S. moves to legalize stablecoins, there is increasing support for the argument that Korea should also allow the issuance of Korean won stablecoins. The ruling Democratic Party of Korea is pursuing individual stablecoin-related bills by legislators Min Byung-deok, Kang Jun-hyun, and Ahn Do-geol to fulfill President Lee Jae-myung's campaign promise, and the party is viewing stablecoins as an important legislative task. These bills allow private business operators authorized by the Financial Services Commission with capital of over 500 million won, 1 billion won, and 5 billion won to issue Korean won stablecoins. The ruling People Power Party's Kim Eun-hye also proposed a bill on July 28 that sets the criteria for issuing stablecoin licenses at a minimum capital of 5 billion won. The rationale is that if the domestic use of dollar stablecoins issued by big tech companies grows, it could undermine the sovereignty of the Korean won, necessitating a response by allowing Korean won stablecoins.
However, Kim Seung-joo, a professor at Korea University, stated that "the demand for dollar stablecoins domestically is linked to the dollar being a reserve currency," adding that "the Korean won stablecoin, which is not a global currency, lacks clear purpose and economic effect and cannot serve as a means to defend currency sovereignty." He expressed concern that "coins without demand could inflate their prices, causing harm to the public due to financial accidents."
There are also concerns about the inherent risks of stablecoins. During the 2023 collapse of Silicon Valley Bank (SVB), the value of Circle's USDC, which should have been pegged one-to-one, dropped to 0.88, leading to a coin run and the need for deposit refunds. Shin Hyun-sung, chief economist at the Bank for International Settlements (BIS), said in an interview with Chosunilbo that "the preference for dollars driven by stablecoins lacking a store of value as a currency expands exchange rate volatility and poses risks of financial instability due to capital outflows."
The Bank of Korea warns that non-bank stablecoins could cause chaos like in the 19th century
Lee Chang-yong, governor of the Bank of Korea, stated on July 10 that, "If numerous non-bank institutions issue stablecoins, the confusion seen in the 19th century when private currency issuance was active could be repeated, making it difficult to implement monetary policy effectively and causing various side effects in the financial system," adding that "we must adequately test the impact on the national economy one by one and proceed with sufficient time. "
However, Kim Yong-beom, head of the Presidential Policy Office, pointed out in a report from May, when he was the representative of the virtual asset think tank Hashed Open Research, that the scalability and technological innovation limitations of stablecoins issued by banks should be examined, stressing that they should become active players designing the digital currency order by allowing issuance to the private sector. Intense debate over the legalization of Korean won stablecoins is anticipated.
Plus Point
Crypto Week's 3 cryptocurrency bills passing in the U.S. Congress, what is the level of regulation?
The U.S. House of Representatives designated the period from July 14 to 18 as Crypto Week and passed and announced three cryptocurrency-related laws that present strict regulatory standards for stablecoins.
The GENIUS Act requires federal and state government approval for the issuance of stablecoins and mandates that cash-equivalent assets should be deposited with external financial institutions at a one-to-one level. It essentially demands bank-level transparency, including accounting audits and monthly disclosures, as well as restrictions on the appointment of directors with criminal backgrounds.
The CLARITY Act clarifies the nature of digital assets and assigns oversight to the Commodity Futures Trading Commission (CFTC), which has less stringent regulations than the Securities and Exchange Commission (SEC), increasing industry flexibility.
The Anti-CBDC Act prohibits the Federal Reserve from issuing a digital dollar, reflecting the political intent of the conservative camp to protect private financial freedoms.
While the U.S. has legalized private stablecoins, designing norms that encompass anti-money laundering, investor protection, and maintaining currency order, the digital asset-related bills currently proposed in the Korean National Assembly focus on the conditions for introducing Korean won stablecoins, receiving criticism for being somewhat lacking in regulatory and normative design.