(Courtesy of Getty Images)
Trading in dollar-backed stablecoins, a virtual currency pegged to the U.S. currency, in South Korea has reached an all-time high amid complex and costly exchange processes and strict regulations, making capital flows more volatile. and ultimately pose a potential risk of destabilizing Asia’s fourth currency. largest economy.
The total trading volume of digital assets such as Tether, USD Coin and Dai listed on South Korean cryptocurrency exchanges is estimated at $32.1 billion in the first nine months, according to an analysis by the Korea Economic Newspaper on Monday. There is. Average daily trading volume was $117.3 million, a record high.
Experts say transaction values likely rose further as more domestic companies turned to dollar-backed stablecoins, which are difficult for governments to track, for international transactions due to their convenience and low cost.
“International transactions in stablecoins are not reflected in official statistics, which could create loopholes in government policy,” said Hwang Seok-jin, a professor at the Graduate School of International Relations and Information Security at Dongguk University in Seoul. “The government needs to consider measures to address this issue.”
More volatile capital flows
According to industry insiders, the expanded use of stablecoins is expected to accelerate the inflow of domestic and foreign capital, as virtual currency transactions do not need to go through the banking system.
Sources said that in the event of an economic crisis, investors are likely to rush to convert their Korean won assets into these digital assets and leave the country.
Bank of Korea Governor Lee Chang-yong also expressed concerns about stablecoins late last year.
“It is expected to increase the volatility of capital flows between countries and impact the monetary sovereignty of countries,” he said.
simpler and cheaper
Many domestic companies prefer dollar-backed stablecoins for international transactions. This is because payments through these virtual currencies are easier and cheaper.
A local trading company received $1 million in a recent transaction not in physical currency but in Tether, the cryptocurrency by volume that has a 70% market share among stablecoins.
The company included the address of a cryptocurrency wallet, rather than a bank account, in the contract to settle the transaction. No documents, such as transaction invoices, were provided to the bank to prove that the funds were for an international trade agreement. The company received funds in real time, which previously took more than a day via banks.
“Corporate (virtual currency) accounts are not allowed in South Korea. However, for businessmen and small and medium-sized enterprises, it is better to transact with personal accounts in terms of costs and procedures,” said the stablecoin expert. Ta.
Existing international transactions require currency conversion, which incurs foreign exchange fees and services from the Society for World Interbank Telecommunications (SWIFT).
Additionally, it may take 2-5 days for the transfer to be completed via your bank.
An industry insider said, “Stablecoins allow direct payments via blockchain networks, so the cost of remittance is extremely low.” “Direct transactions between exporters and importers reduce exchange rate risk.”
Hana Bank trading floor in Seoul (File photo provided by Yonhap)
strict regulations
Strict regulations on South Korea’s foreign exchange market have led domestic companies to seek out stablecoins, according to industry insiders.
The Foreign Exchange Transactions Act requires individuals or companies to report offsets in payments to the Ministry of Finance and other authorities.
If a Korean company buys goods from another company for $100,000 and the buyer owes $70,000, it only needs to pay the seller $30,000. The ministry requires buyers to report all details of the transaction.
Another industry insider said, “Small trading companies that lack the human resources to handle the complex administrative procedures involved in dollar transactions may prefer stablecoins.”
Email Mi-Hyun Jo and Hung-Gyo Seo at mwise@hankyung.com.
Jung Jeong-woo edited this article.
