Don't want to trade it yourself?
Our desk runs DEX portfolios on profit share.
Add to Google Preferred Sources
The Bank of Korea has analyzed that if South Korea’s virtual asset market opens to corporations and foreigners, demand shocks for dollar stablecoins such as Tether could spill over into won-dollar exchange rate volatility. Currently, the absence of global intermediaries in South Korea means supply-demand imbalances are absorbed as a Tether premium (median 1.67%), but evidence from Binance’s trading support cases shows that once intermediaries enter, premiums shrink by 0.33–0.38 percentage points while stablecoin demand instead translates into dollar buying in FX markets, pressuring the local currency weaker. The BOK recommended that digital asset regulatory reform, won internationalization, and FX market structural improvements be pursued as interconnected policy priorities.
Key Elements
South Korea’s central bank has released an analysis showing that if the country’s virtual asset market opens to corporations and foreigners, demand shocks for dollar stablecoins such as Tether (USDT) could transmit into won-dollar exchange rate movements. Currently, such shocks are absorbed as price premiums within South Korean exchanges, but once global market makers enter, crypto buying demand could spill over into dollar purchases in the FX market.
The Bank of Korea’s International Finance Research Team, under the International Department, published the findings on the 3rd in a BOK Issue Note titled “Linkages between Dollar Stablecoins and Foreign Exchange Markets: The Role of Global Exchanges.” Dollar stablecoins refer to virtual assets such as USDT and USDC whose value is pegged to one dollar. Buying them with Korean won is effectively similar to exchanging won for dollar-denominated assets.
Kim Ji-hyun and Cho Sang-heum, deputy directors who co-authored the report, identified the moment when Binance—the world’s largest crypto exchange—began supporting direct trading between specific fiat currencies and dollar stablecoins as the point when global intermediaries meaningfully entered those markets. They then compared conditions before and after trading support began. The analysis covered 12 currencies including the euro, Turkish lira, and South African rand, spanning 2019 to 2025.
Brazil and South Korea showed different shock transmission channels
The analysis found that after Binance began supporting trading, dollar stablecoin premiums in the affected countries narrowed by 0.33–0.38 percentage points. When price gaps emerged between local exchanges and Binance, stablecoins flowed in from Binance, making supply more elastic.
While price gaps narrowed, the channel through which shocks transmit to FX markets strengthened. Before trading support, no significant relationship appeared between stablecoin premiums and exchange rates. After support began, however, rising premiums led to depreciation of the local currency against the dollar. The mechanism: when stablecoin demand increases, global intermediaries sell the local currency in FX markets and buy dollars, exerting downward pressure on the domestic currency.
A comparison between South Korea and Brazil illustrates this difference clearly. Brazilian investors can buy USDT directly with Brazilian reais on Binance, but South Korean investors cannot buy directly with won. When Google <a href="https://xpertsstudio.com/why-bitcoin-ethereum-and-xrp-are-poised-to-extend-subtle-recovery/” title=”Why Bitcoin, Ethereum and XRP are poised to extend subtle recovery”>Bitcoin search volume rose by one standard deum widened by only 0.11 percentage points, while its exchange rate rose 0.12% (the real depreciated). Virtual asset demand had spilled into the FX market
In South Korea, by contrast, the same shock widened the Tether premium by 0.85 percentage points, but the won-dollar exchange rate showed no clear movement. Because South Korean investors trade Tether among themselves in won, supply-demand imbalances are reflected only in prices and do not connect to dollar buying in the FX market.
Kwon Yong-oh, head of the BOK’s International Finance Research Team, said: “A new shock has emerged from the virtual asset market that was not previously a factor in exchange rate movements.” He explained: “In markets like South Korea’s, where global intermediaries are not connected, shocks are reflected in premiums. But in connected countries, they don’t stay in premiums—they transmit to exchange rates.”
South Korea’s Tether premium at 1.67%, comparable to Ukraine and South Africa
South Korea’s elevated stablecoin premium is explained by the same market structure. Since 2022, the median premium for won-denominated USDT has been 1.67%, more than double the median of roughly 0.8% across 30 comparison currencies. That places South Korea close to Ukraine (1.86%) and South Africa (1.80%), both countries with strong capital controls.
For example, if the dollar-won exchange rate is ₩1,400 (approximately $1), the fair price of one USDT would also be ₩1,400, but on South Korean exchanges it trades at ₩1,423 (approximately $1). South Korea, despite being a country with high capital market openness, has thus developed an unusually high premium.
The BOK attributes this to restrictions on corporate and foreign participation in South Korea’s virtual asset market, which has left a shortage of global intermediaries capable of accessing both the stablecoin market and the FX market. Even when demand rises, there are no market participants to supply stablecoins from outside and close the price gap, so supply-demand imbalances accumulate as premiums.
Deputy Director Kim said: “South Korea is not a country with high capital controls or severe dollarization, yet its stablecoin premium is on the high side.” She added: “The cause is a market structure lacking global intermediaries who can supply stablecoins at parity when demand increases.”
If corporate and foreign participation in South Korean crypto exchanges expands in the future, the currently blocked shock transmission channel could open. Global intermediaries receiving won in exchange for stablecoins would then sell those won holdings in the FX market to buy dollars, potentially exerting upward pressure on the won-dollar exchange rate.
The BOK, however, cautioned against drawing definitive conclusions at this stage about the magnitude of institutional changes’ impact on actual exchange rates. The relevant channel has not yet fully formed in South Korea, so sufficient data for analysis is lacking.
The research team stated: “If institutional changes expand corporate and foreign market participation going forward, demand shocks originating in the dollar stablecoin market could affect exchange rates more directly.” They recommended that “digital asset regulatory reform, won internationalization, and FX market structural improvements should be approached not as separate issues but as interconnected tasks.” The reasoning: as the FX market deepens, it can better absorb new shocks, so market opening and liquidity expansion should proceed in tandem to build capacity to absorb dollar demand shocks.
Once added, BigGo Finance appears first in Google Search Top Stories, so you get the broadest, most up-to-the-minute, and most comprehensive global financial news first.
Source: finance.biggo.com