The Bank of Korea (BOK) released a report on Thursday emphasizing the importance of introducing a comparable level of regulation that binds traditional banks into the cryptocurrency market. In addition, the central bank highlighted the potential risks associated with crypto trading, warning that any financial turmoil stemming from this sector could inflict significant damage on the real economy.
BOK's report specifically addressed the expanding usage of stablecoins, noting that their widespread adoption could have an impact on overall financial stability, including monetary and payment systems. To address this concern, the monetary authority stressed the importance of financial authorities being able to enhance the efficiency of regulations by establishing closer cooperation in terms of monitoring, information collection, and supervision in the cryptocurrency space.
Furthermore, the BOK emphasized the need for the government and regulatory bodies to approach the crypto industry with a similar perspective as they do with traditional banks. The central bank's report comes at a time Kim Nam-kuk, South Korea's former opposition lawmaker, stands at the centre of a crypto scandal.
Crypto Needs Robust Regulation
This recommendation reflects the lingering fears stemming from recent cryptocurrency debacles, such as the Terra-Luna collapse and the bankruptcy of FTX, which resulted in substantial losses for investors. However, due to the absence of clear regulatory guidelines, affected investors have been unable to take specific actions to mitigate their losses.
The aforementioned crypto shocks were attributed to risks arising from unsustainable business structures, unstable liquidity , and opaque financial circumstances among market participants. These risk factors exhibit patterns similar to those observed during previous financial crises, further underlining the necessity for robust regulation and oversight in the cryptocurrency market.
In stark contrast with UK lawmakers, the BOK's report serves as a call to action for Korean financial authorities to proactively address the potential risks associated with cryptocurrencies. By implementing a regulatory framework akin to that governing traditional banks, authorities aim to safeguard the stability of the financial system and protect investors from future cryptocurrency-related disruptions.
It remains to be seen how regulators will respond to the BOK's recommendations. However, it is evident that a comprehensive and balanced regulatory approach is crucial to safeguarding the interests of investors, maintaining financial stability, and fostering healthy development of the cryptocurrency market in Korea.
