US dollar stablecoin expansion could neutralize Bank of Korea policy

The expansion of US dollar stablecoins could neutralize the Bank of Korea's ability to manage interest rates and inflation, according to experts discussing the potential for US-led digital dollar hegemony. The threat to South Korea's monetary sovereignty follows the projected implementation of the Dineus Act next January.

Warnings have emerged that the acceleration of US dollar stablecoin expansion could neutralize the Bank of Korea's monetary policy and shake the nation's economic governance. This is because the spread of a US-led digital dollar could result in the absorption of other nations' economic populations and assets into the US economic sphere.

In a recent discussion presented by The Man Who Explains the Economy (Kim Kwang-seok TV), three experts—Jeong Gu-tae, Kim Dong-hwan, and Kim Gwang-seok—held an in-depth dialogue regarding the changes in the future economic landscape brought by dollar stablecoins and the crises facing South Korea. The panelists reached a consensus that stablecoins are more than just technological progress; they are powerful tools that could shake a nation's monetary sovereignty and fiscal foundation.

"A Way to Kidnap Economic Populations"... US-Centered Digital Dollar Hegemony

The panelists clarified that stablecoins are ultimately the pathway for the spread of the "digital dollar." As programmable, blockchain-based currencies, stablecoins are analyzed as a key means for the US government to maintain dollar hegemony even in a digital environment. In particular, it was projected that the US government will more powerfully expand stablecoins through the Dineus Act, which is scheduled to be implemented next January. It was emphasized that the US government views stablecoins not as a new currency, but as a "currency" to spread the dollar.

Jeong Gu-tae compared the method of stablecoin expansion envisioned by former President Trump to "kidnapping the economic population in other countries to the US." This does not mean physical movement, but rather the absorption of other countries' economic capabilities into the US economic sphere through the movement of digital assets. It was pointed out that while the movement of citizens was limited in the past, the development of communication technology has allowed assets to move faster than people, which could break the triangular balance of the economic community consisting of the state, territory, and people.

In this process, emerging nations become dependent on dollar stablecoins, which ultimately results in the effect of people worldwide indirectly purchasing US Treasury bonds. While this contributes to the US economy, it results in the outflow of economic capability from the respective countries. The video mentioned that dependence on US dollar stablecoins is already increasing in some emerging nations, such as those in Southeast Asia, South America, and Africa.

Decreased Tax Revenue and Neutralized Monetary Policy... Threatening the Reason for the Bank of Korea's Existence

The most direct threats cited for the spread of stablecoins are "decreased tax revenue" and "loss of monetary sovereignty." If citizens move assets to other economic spheres through digital assets, the tax base that the state must secure through economic activity will inevitably shrink. This leads to a collapse of governance, making it difficult for the state to maintain public services provided to its citizens. This decrease in tax revenue could be particularly fatal in a situation where the fiscal position is expected to worsen due to population decline.

In the case of South Korea, projections suggested that the crisis in terms of monetary policy could be severe. If the South Korean economy begins to use dollar stablecoins as the primary means of payment instead of the Korean won, the Bank of Korea's authority to decide interest rates will effectively lose its meaning. Even if the Bank of Korea makes interest rate decisions considering Korea's inflation, economic conditions, or real estate situation, the value of the actual currency—the dollar—will be dictated by US interest rate decisions. Kim Gwang-seok compared this to a language situation: "It is like a situation where everyone speaks English, but public educational institutions only teach Korean." He warned that if the influence of the won weakens and reliance on the dollar increases, the Bank of Korea's monetary policy may not function in the market. This implies that the core role of the Bank of Korea in managing Korea's inflation, real estate, and financial stability could be neutralized.

Furthermore, an analysis suggested that the "America First" stance of a Trump administration could push stablecoins in a direction that strengthens US hegemony, even if it entails the collapse of the governance of other nations, unlike the Biden administration. This was identified as a factor that could make economic independence difficult for vulnerable countries.

Need for Legal Foundations and Countermeasures such as Won-based Stablecoins

Discussions also continued regarding countermeasures South Korea could take in the face of such crises. The panelists agreed that it is urgent for South Korea to establish legal and institutional foundations to respond to the onslaught of the dollar. This is because the US operates in an environment where it can attempt things not explicitly listed in the law, whereas South Korea has a regulatory environment where only things specified in the law can be performed. Accordingly, the industry is also demanding the establishment of a legal foundation. It was explained that a legal basis must be established so that various market players can participate and form a market through alliances.

As a specific measure, the introduction of "Won-based stablecoins" was mentioned. It was suggested that Won-based stablecoins should be used not only to defend the domestic payment market but also as a defensive mechanism to expand the scope of Won usage to friendly foreign countries to prevent the penetration of dollar stablecoins. This could serve as a strategy to prevent the long-term onslaught of the dollar by creating opportunities to "export" the Won, much like exporting the Hangul script.

Ultimately, the key is to secure an economic foundation that can maintain national identity. The conclusion of the discussion was that in a digital age where the movement of assets is accelerating, a preemptive and strategic response to the new currency system of stablecoins is essential for the state to secure tax revenue and protect the economic foundation of its citizens.

Source: original video (YouTube)