Warnings have been issued that stablecoins could serve as a conduit for capital outflows, posing a serious threat to the global financial order and national currency sovereignty. Economists have suggested Central Bank Digital Currency (CBDC) with safety and public interest as an alternative.
Shin Hyun-sung, chief economist at the Bank for International Settlements (BIS), focused on the risks of stablecoins at the session titled 'Current Status of Central Bank Digital Currency (CBDC)' during the International Economists Conference (ESWC) held at COEX in Seoul on the 21st.
◇ "Stablecoins, a conduit for capital outflow and financial crime"
The economist noted that while there are legitimate uses for stablecoins, they are widely used as a means to circumvent control over capital inflows and outflows due to their ability to facilitate anonymous transactions through blockchain-based personal wallets and their cross-border nature.
According to him, 63% of virtual asset crimes that occurred since 2022 involved stablecoins. In particular, adverse effects have stood out as they are widely utilized as a means of capital evasion in countries with high exchange rate volatility. The economist emphasized that 'even in countries with institutional mechanisms like foreign exchange transaction laws, completely blocking illegal transactions of stablecoins is insufficient,' adding that 'monitoring and controlling the billions of routine transactions is virtually impossible.'
He expressed concerns that if stablecoins based on national currencies are introduced worldwide, the influence of the dollar could increase, intensifying instability in the foreign exchange market. He warned that 'if stablecoins issued in national currencies are exchanged for dollar-denominated virtual assets, it opens a conduit for capital outflow and may effectively nullify existing foreign exchange regulations.'
The economist mentioned the Bank of Korea's 'Project Han River' and the international cooperation project led by the BIS, 'Project Agora,' as means to address these issues. 'Project Han River' is an initiative led by the Bank of Korea that experiments with issuing deposit tokens (stablecoins) within a bank-centered network. 'Project Agora' aims to improve cross-border payment systems by tokenizing central bank reserves and bank deposits.
Yoon Seong-kwan, head of the Digital Currency Division at the Bank of Korea, introduced the results of the Project Han River experiment during the same session. He explained that 'a CBDC-based system enables real-time transactions and risk-free payments between digital assets, complementing the limitations of the existing financial system,' and noted that 'customized vouchers have greatly enhanced the efficiency and transparency of social subsidies by restricting spending to specific items.'
He added, 'The support for machine-to-machine payments has opened the possibility for artificial intelligence agents to participate directly in payments in an automated transaction environment,' stating that 'there are policy implications that utilizing the CBDC platform can track the flow of public funds, prevent subsidy abuse, and reduce waste and fraud through automated management.'
◇ "CBDC preferred by 20% of the public… minimal impact on the real economy"
During the 'Digital Currency 2' session held that morning, research results on the economic effects of CBDC were presented. Professor Kim Young-sik from Seoul National University predicted that if CBDC is introduced domestically, about 20% of adult men and women would choose it as their preferred payment method, a higher figure than cash (18%) and mobile quick payment (16%).
CBDC is a digital form of legal currency issued by the Central Bank, distinguished into retail used for everyday payments and wholesale used for transactions between financial institutions.
Professor Kim stated that it is important to design CBDC policies in a way that enhances user preference. He mentioned, 'In markets where the proportion of credit card usage is high, such as Korea, a strong substitution effect with cards is observed,' and that 'the policymaker can adjust user preferences based on how elements such as financial compensation and anonymity provision are set.'
There were also claims that CBDC does not negatively impact the real economy. Professor Cho Seong-hoon from Yonsei University's Department of Economics analyzed that even if CBDC is introduced, its impact on the real economy would be minimal. This contradicts the existing notion that CBDC could replace bank deposits and reduce overall economic welfare.
He said, 'Even if the share of CBDC holdings increases in total liquidity, there would still be only very minimal long-term changes in real variables such as consumption, labor, and capital,' adding, 'There would be no problems even with the introduction of CBDC.'