US tariff deal clears way for Korea's stablecoin dream

AllAfrica

2 days ago

TOKYO – As new South Korean President Lee Jae Myung sets out to revamp Asia's fourth-biggest economy, he can cross direct US tariff risks off the list of possible spoilers.
Korea's tariff deal with the US removes a gigantic element of uncertainty as Lee gets to work raising Korea's economic game. Though the 15% tax on US-bound goods will hurt, getting the uncertainty factor out of the way will enable Korea Inc to move forward.
'It is a case of the worst avoided, with a pinch of relief removing Korea-specific tariff risks,' says Kathleen Oh, chief Korea economist at Morgan Stanley. 'It puts Korea on level ground with its export competitors in the US, especially for autos.'
Eurasia Group analyst Jeremy Chan notes that Korea's agreement hews closely to the deal signed by Japan one week ago and is in line with his view that major US trading partners will be handed around 15% tariff rates.
Korea's US$350 billion investment fund mirrors the $550 billion fund announced in Japan's agreement, Chan notes. About 90% of the profits from the fund will reportedly go to the US—the same ratio that Japan received—which Korean officials interpret to mean that 90% of the fund's profits will be re-invested in the US.
Like Japan, Chan notes, Korea's fund will be made up almost entirely of loans and guarantees, with direct investment comprising only a very small portion. Korea's commitment to purchase $100 billion in US energy exports will likely include offtake agreements for the Alaska LNG pipeline project that Japan is also exploring.
Now Lee will likely have the bandwidth to focus on his newest preoccupation: digital assets. Korean lawmakers are brawling over stablecoins, and the brouhaha couldn't be better for the nation's sudden embrace of the global digital assets boom.
The clash is less about whether Korea should become one of the region's crypto-friendly economies in Asia. It's about how to implement the new president's vision for the broad-based issuance of won-backed stablecoins and give digital asset innovation a prominent place globally.
Korea joins Hong Kong in efforts to ramp up issuance via legislation. These legislative moves aim to avoid putting the cart before the proverbial horse in a nascent market sure to upend global currency dynamics. Creating trusted and transparent regulatory and licensing regimes will be key to building broader acceptance for the industry.
In Seoul's case, Lee's Democratic Party of Korea (DPK) and the opposition People Power Party (PPP) are pushing competing stablecoin bills in the National Assembly.
DPK member Ahn Do-gil introduced the Act on the Issuance and Distribution of Value-Stable Digital Assets, while the PPP's Kim Eun-hye proposed the Act on Payment Innovation Using Value-Fixed Digital Assets.
Lee's push marks his first real economic pivot from the disgraced Yoon Suk Yeol administration. In early April, the courts removed Yoon from office. This was five months after his reckless martial law declaration in December, for which PPP member Yoon was impeached.
When Lee's DPK won election in June, the immediate goal was to make up for lost time to stabilize Asia's fourth-biggest economy. Several months of political wrangling over Yoon's fate were a lost period for moves to raise Korea's competitive game.
In the interim, the economy shrank in the first quarter as the Kospi stock market gyrated. That left the Bank of Korea largely in the driver's seat. Yet Lee's stablecoin focus suggests his administration has hit the ground running.
Typically, Korean regulators are among the most cautious in Asia. All of which makes the Lee administration's stablecoin gambit all the more unexpected.
As DPK lawmaker Min Byung-deok, a member of the National Assembly's Political Affairs Committee, puts it, legislation now under consideration would allow non-financial companies to issue won-denominated stablecoins — and to do so beyond the Bank of Korea. The catch is that digital assets would operate under a clear legal framework.
Another catch: the BOK may still require some convincing. It worries Lee's stablecoin vision will increase capital outflow risks.
Among legislators, provisions would also facilitate security token offerings (STOs) and pave the way for the creation of, and transacting in, spot market exchange-traded funds (ETFs) backed by virtual assets.
'The STO bill will first go through the standing committee next month,' Min says. Min adds that the presidential office's chief policy aide, Kim Yong-beom, a blockchain expert, is 'largely supportive of the bills.'
Korea isn't setting the stage for a crypto free-for-all. It plans to tweak strict foreign currency transaction laws accordingly and strengthen oversight in the crypto market by the BOK and the Ministry of Economy and Finance.
The BOK must be empowered to play its role in maintaining financial stability,' says DPK member Ahn. 'If stablecoins are used abroad, they become a form of foreign exchange. That means the finance ministry needs a legal foundation to exercise its authority.'
Ahn says the process will also be coordinated by the Financial Services Commission. President Lee's team has ordered up a task force on stablecoin implementation.
Lee's timing with these crypto reforms could be particularly favorable, as Korea Exchange is exploring digital ETFs, hoping to allow institutions to begin trading them as early as the third quarter.
Korea also joins Hong Kong in enjoying something of a first-mover advantage in one of the hottest areas of global finance, one still arguably in the frontier stages.
According to Paul Chan, Hong Kong's financial security, the global market value of stablecoins is estimated at about $240 billion, with trading volume topping $20 trillion in 2024.
In Korea's case, voters gravitated to Lee's crypto-friendly platform. As of the end of 2024, Koreans held some $74.5 billion worth of digital assets.
On the campaign trail, Lee pledges to legalize and nurture digital ETFs, promote the widespread adoption of Korean won-backed stablecoins, streamline regulations to prevent capital flight and even allow the massive $884 billion National Pension Service to invest in digital assets.
Yet Lee must multitask in a hurry. Lee inherited an economy under pressure from global tariffs. Despite the US tariff deal, Trump has yet to reach a deal with China.
Even as Seoul takes a breather after notching tis tariff deal, it must brace for the shock waves if China refuses to grant Trump the 'grand bargain' deal he seeks. That could see Trump turning his tariff policies up to 11, slamming Korea's open, trade-reliant economy.
Over the last six months, BOK Governor Rhee Chang-yong's rate cuts have been the glue holding a fragile economy together. Yet as the BOK cuts rates, it's been limited by domestic constraints. Further rate cuts might encourage households to up borrowing activity.
Korea's household debt-to-gross domestic product ratio of 91.7% was the second highest among major nations at the end of 2024. That's the second highest among 38 Organization for Economic Cooperation and Development nations. Any step lower in BOK rates risks incentivizing households to increase debt, adding to Korea's biggest imbalances.
The vacuum Yoon created left BOK's team squarely in the driver's seat. More and more, the central bank took the lead in managing one of the globe's most open and dynamic major economies.