South Korea's Central Bank Demands Stablecoins Enter Forex Law Amidst Crypto Regulatory Battle

The Bank of Korea (BOK) is actively working with the government to draft an amendment to the Foreign Exchange Transactions Act, with plans to finalize it before year-end. This legislative effort aims to regulate stablecoins as a recognized means of payment, according to a written submission presented to the National Assembly’s annual audit, as reported by the Korean outlet Digital Asset. The BOK's October 22 report, serving as a follow-up to last year’s audit findings, indicates ongoing consultations with the government regarding comprehensive measures to oversee cross-border transactions involving virtual assets. While developing a monitoring system based on foreign exchange network reporting, the central bank intends for the amendment to specifically address stablecoins as a means of payment. It's important to note that this is a plan to draft a bill, not a final piece of legislation, with no specific text, token names, or passage dates yet defined. Within the context of Korean forex law, "means of payment" refers to an instrument whose cross-border movement necessitates reporting. Thus, the proposed amendment would likely subject dollar stablecoins to similar reporting controls as traditional wire transfers to international destinations, rather than elevating them to the status of legal tender for everyday transactions in South Korea.

The BOK has highlighted several factors contributing to the ease of illegal transactions in the virtual asset space, including settlement occurring outside traditional banking systems, the use of mixers, and existing regulatory gaps concerning personal wallets. This move towards a tighter regulatory framework on foreign exchange around cryptocurrencies is particularly relevant for Bitcoin holders engaging in self-custody in Korea. Such measures are expected to reinforce existing capital controls, which are historically linked to the existence of the "kimchi premium," rather than alleviating them.

These foreign exchange regulatory initiatives are progressing in parallel with the development of the broader Digital Asset Basic Act. This significant legislation is designed to establish a framework for licensing and stablecoin issuance, and it was previously highlighted in the government’s 2026 growth strategy, alongside discussions surrounding spot bitcoin ETF approval. Financial Services Commission chairman Lee Eog-weon informed lawmakers that consultations for this act are in their final stages, with the bill expected to follow as soon as possible, as reported by Bloomingbit. In the interim, until the Digital Asset Basic Act is enacted, the BOK has committed to collaborating with various ministries to restrict transactions that exploit the current regulatory void.

Adding another layer of complexity to South Korea's crypto landscape are the ongoing discussions surrounding cryptocurrency taxation. The country’s crypto income tax is currently scheduled to take effect on January 1, 2027, following three previous postponements, according to The Block. This timeline has prompted questions from lawmakers about the appropriateness of taxing a market before the legal framework defining it is fully established. Chairman Lee Eog-weon indicated that the tax should "take various circumstances into full consideration," as quoted by Yonhap. Furthermore, Democratic Party leader Kim Min-seok has called for a "thorough final review," marking a notable shift from his party’s previous insistence on the 2027 implementation date. Public sentiment also reflects concerns, with two separate petitions—one advocating for the repeal of the tax and another for a two-year deferral—each gathering over 50,000 signatures, thereby compelling a legislative review. Despite these developments, the National Tax Service reportedly plans to finalize its draft tax notice by October 30, as stated by Digital Asset.