Bank of Korea study: stablecoin demand may be transmitted to the foreign exchange market! Regulators in Taiwan and South Korea are equally vigilant about the risks of “digital dollarization”

The scale of U.S. dollar stablecoins continues to expand, and their impact is spreading from the cryptocurrency market to the traditional foreign exchange market. The latest research from the Bank of Korea points out that when global exchanges list “local fiat currency/U.S. dollar stablecoin” trading pairs, buying pressure in the stablecoin market may be transmitted to the real foreign exchange market through arbitrage and liquidity providers, and is significantly associated with depreciation of the local currency.
On September 3, the Bank of Korea released a study (Stablecoin–FX Linkages: Evidence from Fiat–Stablecoin Pair Listings on a Global Exchange), using Binance’s addition of fiat currency and U.S. dollar stablecoin trading pairs as the research event to analyze the linkage between the stablecoin market and the traditional foreign exchange market.
The study found that before relevant trading pairs were enabled, when local USD stablecoins traded at a premium, this was mainly reflected in crypto-market prices themselves, with limited impact on the exchange rate between USD and the local currency. But after Binance opened relevant fiat trading pairs, price linkage between the two markets increased markedly.
Specifically, when USD stablecoins trade at a relatively high premium compared with local exchange rates, researchers observe a more pronounced depreciation in the domestic currency. The “net buyer-initiated order flow” that reflects the pressure from stablecoin demand is also significantly associated with depreciation of the fiat currency involved in the trading pairs.
Why buy USDT—why might it ultimately become a purchase of dollars?
The underlying mechanism is not complicated.
Assume investors buy USDT or USDC in large quantities using the local currency. Global market makers would then supply USD stablecoins to the market while receiving large amounts of the local currency. To control their own exchange-rate risk, market makers may sell the local currency in the traditional foreign-exchange market and buy back USD.
In other words: increase in demand for the local currency → higher USDT demand → market makers accumulate local currency → the foreign-exchange market sells local currency and buys USD → depreciation pressure transmits to traditional FX markets.
The Bank of Korea points out that currently Korea has no corresponding Binance KRW-to-fiat trading pairs. Therefore, at this stage the buy-pressure from stablecoins in the Korean market mainly reflects a “Korean premium” on stablecoins, and no equally significant direct impact on the KRW exchange rate has been found yet.
However, if in the future Korean companies, offshore investors, and global market makers participate more deeply in the digital-asset market, the link between stablecoins and the KRW foreign-exchange market may become even stronger. The Bank of Korea therefore believes that stablecoin/digital-asset regulation cannot be separated from discussions of foreign-exchange policy, and that it is also necessary to enhance the internationalization of the KRW and deepen the foreign-exchange market.
The global stablecoin market is nearing 300 billion USD
This research has attracted attention and is also related to the rapid expansion of the USD stablecoin market. CoinGecko data as of September 7 shows that the global stablecoin total market capitalization is about 291 billion USD, of which USDT is about 183.4 billion USD and USDC about 74.5 billion USD; together they total close to 258 billion USD, accounting for nearly 90% of the entire stablecoin market.
This means stablecoins are no longer just “tools of account” inside crypto exchanges; they are gradually becoming an on-chain dollar system with a scale of hundreds of billions of dollars.
For economies with a relatively smaller domestic-currency base and more open capital markets, once large numbers of residents convert their local currency into USD stablecoins, the resulting demand may produce effects similar to traditional “dollarization” or capital outflow.
The central bank of Taiwan has issued the same warning as well.
The Bank of Korea’s latest research is especially valuable as a reference for Taiwan.
The stablecoin policy analysis released this year by the Central Bank of Taiwan has clearly stated that, because the dominant stablecoins today are mainly pegged to the US dollar 1:1, when people use their own currency to buy USD stablecoins, “in essence it still involves conversion between the local currency and the US dollar.”
Even if the transactions are transferred from banks to virtual asset service providers (VASPs), the providers may ultimately adjust their USD positions through the banking system to manage inventory and exchange-rate risk. Therefore, “the USD demand derived from stablecoin transactions will ultimately be transmitted to the real forex market.”
The central bank also cited research from the BIS, the IMF, and the Hong Kong Monetary Authority, noting that when there is a price spread between USD stablecoins and traditional USD spot exchange rates, arbitrage activity may increase. Especially during periods of sharp market volatility, high-frequency arbitrage may not only raise forex trading volumes, but also amplify exchange-rate volatility.
Therefore, the Bank of Korea’s latest empirical results, to some extent, provide new market evidence for the transmission mechanism previously proposed by Taiwan’s central bank.
Taiwan’s stablecoin has been formally included in legal supervision
Taiwan’s policy environment is also entering a new phase. The (Virtual Asset Service Act) was promulgated on July 22, 2026 and formally defines “virtual assets linked to the value of one or more fiat currencies to maintain price stability” as stablecoins. To issue stablecoins in Taiwan, the issuer must first obtain approval from the FSC, and before the FSC grants approval it must consult with the central bank.
Law more directly incorporates foreign-exchange risk into the institutional framework.
Pursuant to Article 36, stablecoin issuers must maintain full reserve assets and store them with domestic financial institutions. If the issuance involves foreign exchange, it must be handled in accordance with regulations set by the central bank. The FSC and the central bank will also jointly define related sub-regulations concerning reserve assets, reserve funds, issuance, and redemption.
This means that, in the future, whether Taiwan develops a TWD stablecoin or allows more USD stablecoins to enter the local trading ecosystem, the policy issue cannot be limited to “crypto-asset regulation”—it will directly involve exchange-rate management and monetary policy.
The real policy value of a Taiwan dollar stablecoin: reducing the replacement effect of USD stablecoins?
Another question worth considering for Taiwan, brought up by research from the Bank of Korea: if Taiwan does not have competitive TWD-denominated digital-currency tools, will USD stablecoins gradually become the de facto unit of account in on-chain economic activity?
Currently, USDT and USDC control most of the global stablecoin market. If Taiwan’s cross-border payments, Web3 investments, and tokenized financial products become increasingly dependent on USD stablecoins, local funds may convert more frequently between “TWD—USD stablecoins.”
This is another potentially more important strategic significance of the Taiwan dollar stablecoin policy, beyond payment innovation: to ensure the TWD can retain accounting and payment functions within the on-chain financial system, reducing the degree of “dollarization” during the development of digital finance.
The Bank of Korea’s latest research shows that stablecoins and foreign-exchange markets are no longer two completely independent financial systems. As trading platforms, market makers, and cross-border funding channels become increasingly connected, buy orders for USDT or USDC—once existing only in the crypto market—may ultimately turn into demand for dollars in traditional forex markets.
For Taiwan, the (Virtual Asset Service Act) is only the first step in institution-building. Next, how the stablecoin sub-regulations handle foreign-currency stablecoins, TWD stablecoins, reserve assets, and fiat trading pairs on trading platforms may ultimately determine whether Taiwan can both encourage digital financial innovation and control spillover risks to the TWD exchange rate and monetary sovereignty.
Related content: The FSC of Taiwan is drafting nine sets of sub-regulations for virtual assets, with the earliest implementation in the first quarter of 2027
"Bank of Korea research: Stablecoin demand may transmit to FX markets! Taiwan and Korea regulators also warn about the risk of ‘digital dollarization’" This article was first published on (BlockGuest).