The South Korean central bank expressed concern that the trading of cryptocurrency could place the entire country’s financial system at risk.
Bank of Korea’s Lee Ju-yeol explained that due to the volatility of cryptocurrency and how many people are trading cryptocurrency, the technology could lead to a financial collapse.
“An excessive level of leveraged cryptocurrency trading puts households at risk of financial damages considering the instability of [cryptocurrency]. We expect [the increasing amount of crypto trading] to have a negative impact on the financial system in any respect,” Lee explained to the media.
Lee said he will begin closely analysing institutions associated with the South Korean financial dealings and especially those that have known investments in cryptocurrencies. He explained that the Central Bank will have to work very closely with development related to cryptocurrencies.
The Central Bank eluded to a need to lower the number of loans so that those borrowing assets don’t lead to a “spillover” on the South Korean banking system.
This is not the first time the government of the Land of the Morning Calm has shows signs of discontentment with cryptocurrencies. In 2020 the South Korean government proposed a 20% tax on income earned through the trade has been touted as a means of “normalizing taxation” for transactions involving crypto assets.
But some advocates and investors petitioned against the government for three months to allow deductions on earnings.
South Korea remains one of the biggest crypto markets in the world but the exchanges based in the country are finding it extremely difficult to get to a point where they satisfy regulators.
The regulations in the country are already quite robust. If one were to start an exchange they have to have the backing of a traditional bank and have a registered customer account. This causes some controversy as banks are still wary of aligning themselves with exchanges considering some of the risks and malpractice concerned with cryptocurrencies.
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