BOK: “The Easier It Is to Buy Stablecoins, the More the Korean Won May Come Under Pressure”

[Financial News] A study has found that the easier it becomes to buy and sell dollar stablecoins in a country’s own currency, the more that currency may lose value against the dollar. Connecting stablecoins to the foreign-exchange market creates a channel through which they can affect exchange rates—not merely by driving up crypto-asset prices, but by triggering actual dollar purchases.
According to a report released by the Bank of Korea (BOK) on the 3rd, researchers analyzed how demand pressure for dollar stablecoins is transmitted to the foreign-exchange market across 12 fiat currencies supported for trading on Binance, the world’s largest crypto-asset exchange. The two factors showed a positive relationship.
The findings confirm a “shock transmission” from demand pressure in the dollar stablecoin market to the foreign-exchange market. In other words, a widening premium on dollar stablecoins leads to a larger rise in the exchange rate, meaning a depreciation of the local currency.
When a fiat currency is listed on Binance and direct trading is supported, demand for dollar stablecoins based on that currency is no longer absorbed solely within the local market. Instead, it is transmitted directly to the global market, as users can deposit the fiat currency on Binance and use it to purchase dollar stablecoins.
The BOK used a hypothetical transaction involving the purchase of dollar stablecoins with Brazilian real as an example. Market makers, such as hedge funds, would provide the stablecoins to the counterparty and receive Brazilian real in return. Their balance sheets would then shift from “dollar assets–dollar liabilities” to “Brazilian real assets–dollar liabilities,” creating a currency mismatch. This would give them an incentive to buy dollars in the foreign-exchange market, increasing actual demand for the dollar.
Comparing Brazil and South Korea, the study found that when Bitcoin search volume in a country increased by one standard deviation, the premium in Brazil widened by 0.11 percentage points, followed by a 0.12% rise in the exchange rate, indicating a decline in the value of the local currency. In South Korea, by contrast, the premium jumped by about 0.85 percentage points, while the effect on the exchange rate was not statistically significant.
The difference lies in whether the currency is listed. When an intermediary supports trading, the impact is not limited to crypto-asset prices; it is connected to the foreign-exchange market and can move exchange rates.
However, when Binance supported trading, the premium on dollar stablecoins fell significantly by 0.33–0.38 percentage points.
Dollar stablecoins such as Tether (USDT) and USD Coin (USDC) are pegged to the dollar at a price of $1 per coin. Buying them with Korean won is therefore effectively the same as purchasing a dollar-denominated asset. If the spot exchange rate is 1,300 won per dollar, one unit of a stablecoin should also trade at 1,350 won. But when excess demand emerges, it may trade at 1,400 won; the excess amount is called the “premium.”
In South Korea, the figure is 1.67%. That is similar to levels in countries with strict capital controls, such as Ukraine at 1.86% and the Republic of South Africa at 1.80%. At present, crypto-asset trading by corporations and foreigners is restricted in South Korea.
In light of these findings, the results suggest that the Korean won could face downward pressure as an environment for trading dollar stablecoins with Korean won develops. If the Korean won is listed on global exchanges and users can directly purchase dollar stablecoins, the premium itself may narrow, but the possibility that market fluctuations will spill over into exchange rates would increase.
Cho Sang-heum, a senior researcher with the International Finance Research Team at the Bank of Korea’s International Department, explained, “If the structure of the domestic crypto-asset market changes through expanded participation by corporations and foreigners, the link between the stablecoin market and the foreign-exchange market is expected to strengthen. Internationalization of the Korean won and improvements to the structure of the foreign-exchange market will help absorb shocks by expanding the market-participant base and foreign-exchange-market liquidity.”

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