| A representation of cryptocurrency Binance is seen in this illustration. Reuters-Yonhap |
By Kim Yoo-chul
The country's central bank didn't deny the role of “stablecoins” in terms of their utility in monetary transactions, the Bank of Korea (BOK) said in a report released Sunday.
Stablecoins are viewed as a type of cryptocurrency connected to an asset such as the U.S. dollar which doesn't change in value drastically. These types of crypto-assets are originally used to purchase other cryptocurrencies including bitcoin because many cryptocurrency exchanges still lack direct access to traditional banking.
“In the case of stablecoins, because these are designed to maintain their value stably thanks to their connection to legitimate currencies, there's a high possibility for stablecoins to be used and to be efficient when it comes to money transfers between countries, payments in the virtual world and creation of an ecosystem that will be operational with cryptocurrencies as the base,” the BOK said in the report.
“As a means of investment and speculative trading, stablecoins may receive continued attention.”
The bank's assessment of stablecoins makes sense despite its general negative stance on cryptocurrencies. Unlike most of today's high-volatility cryptocurrencies, the majority of stablecoins that exist currently use the U.S. dollar as their benchmark asset.
But many of them are also pegged to other major currencies, such as the euro and yen. They have little fluctuation in terms of their prices despite external factors, while even high-profile cryptocurrencies are prone to ups and downs.
But the BOK said the role of cryptocurrencies would be limited, citing media reports which showed doubt for private cryptocurrencies to take a greater role as legitimate currencies.
Regarding the usability of decentralized finance (DeFi), the report said its role will be expanded thanks to continued efforts by financial institutions and governments for digitally oriented economies. DeFi refers to financial services operating entirely on blockchain networks with high security and verifiability rather than through intermediaries like banks, according to analysts and officials. Stablecoins are also operational within the blockchain framework making them of high appeal to the BOK.