Potential positive impact of monetary stimulus in China

Two Russian nationals have been referred to prosecutors in South Korea for allegedly facilitating the illegal transfer of roughly 58 billion won ($42.2 million) to Russia using USDT, a U.S. dollar-pegged stablecoin. According to a report by KBS News, the Seoul branch of the Korea Customs Service (KCS) announced the charges on May 22, citing violations of the country’s Foreign Exchange Transaction Act. The suspects, a man and a woman both in their 40s, reportedly operated an unauthorized money exchange business to carry out the transactions.Photo by Polina Tankilevitch on PexelsOver 6K transactionsAuthorities suspect the pair of repeatedly using USDT to conduct cross-border transfers between South Korea and Russia. From January 2023 to July 2023, the duo allegedly completed 6,156 illegal remittance transactions, either sending funds abroad or receiving payments on behalf of others, totaling the full 58 billion won in question. Investigators revealed that the two suspects, who hold permanent residency in South Korea and have overseas Korean status, used the messaging app Telegram to solicit clients. When transferring money to Russia, they reportedly collected funds via kiosks in convenience stores that allow users to send money without a bank account. The collected cash was then used to purchase USDT to complete the remittances. According to customs officials, the suspects would either send the cryptocurrency directly to a crypto wallet specified by the customer, or forward it to accomplices in Russia. These accomplices would then convert the crypto to cash and distribute rubles to recipients through local channels. Illicit crypto use by businesses The operation also handled export payments for South Korean businesses. The suspects reportedly accepted payments from Russian importers on behalf of Korean used car dealers and cosmetics exporters. In these cases, associates in Russia would collect ruble payments from importers, convert the funds into USDT and send the cryptocurrency to contacts in Korea. The funds were then exchanged for Korean won and deposited into the accounts of the businesses. Customs officials believe that the group’s services became particularly appealing after the start of the Russia-Ukraine war in 2022. In the wake of U.S. and international sanctions against Russia, legitimate financial channels for cross-border transactions became restricted, prompting some companies and individuals to turn to illegal alternatives. The Korean export companies involved in these transactions have been fined. The Seoul Customs Office emphasized that illegal money exchange operations are often exploited for criminal activities such as drug trafficking, voice phishing and gambling. In response, the agency committed to stronger enforcement and pledged to spare no effort in combating unlawful financial operations. Scams grow inside the borderThe surge in crypto-related financial crimes in South Korea extends beyond cross-border transactions. According to a recent report by Maeil Business Newspaper, Kakao Pay—a local mobile payment platform—has detected around 70,000 cases of malicious apps linked to virtual assets over the past month. Of those, 80% were associated with Ponzi schemes, where fraudsters lure victims with promises of high returns before disappearing with the funds. A Kakao Pay spokesperson noted that new forms of security threats are emerging alongside the rapid growth of the crypto market, adding that the company is prioritizing the development of stronger security systems. 

Hong Kong Moves to Enable Retail Crypto TradeHong Kong’s Securities and Futures Commission (SFC) has moved to enable retail participation in crypto trading within the Chinese autonomous territory.The SFC has arrived at that determination, according to a report it published on Tuesday. The report, titled “Consultation Conclusions on the Proposed Regulatory Requirements for Virtual Asset Trading Platform Operators Licensed by the SFC (Note 1),” provides an overview of the nature of feedback the Commission received as part of its consultation process relative to virtual asset trading.Photo by Ben Cheung on PexelsRetail investor protectionIn the press release which accompanied the report, the Commission outlined that “a significant majority of respondents agreed to our proposal to allow licensed trading platform operators to serve retail investors.” On that basis, the SFC is moving forward in enabling retail trading of crypto assets through licensed virtual asset trading platforms effective June 1, and it’s setting out to do so while implementing a number of measures to protect retail investors.That will include ensuring that operators provide an appropriate on-boarding process. In the case of crypto asset projects, the SFC is determined to see to it that good governance is implemented, alongside enhanced token due diligence, admission criteria, and disclosures.In the statement, the SFC’s CEO Julia Leung, said that “providing clear regulatory expectations is the key to fostering responsible development.” She added that “Hong Kong’s comprehensive virtual assets regulatory framework follows the principle of ‘same business, same risks, same rules’ and aims to provide robust investor protection and manage key risks. This will enable the industry to develop sustainably and support innovation.”Specific conditionsOne item that the SFC’s new rule-book on virtual asset trading for retail investors outlines is a ban on crypto “gifts.” Effectively any promotions or incentives that lead with free gifts, and this will likely include token airdrops, will be prohibited.In terms of capital liquidity, virtual asset exchanges will be required to maintain a minimum of 5,000,000 Hong Kong dollars ($638,000) at all times as a minimum paid-up share capital. A Platform Operator must at all times maintain liquid capital which is not less than its required liquid capital,” the document outlines.Token due diligenceThe SFC acknowledged that it can be difficult for virtual asset exchanges to carry out due diligence on new tokens. With that in mind, it has incorporated a requirement for any new token to have a twelve-month track record before it can be considered to be listed to provide an indication of such things as supply, demand, maturity, and liquidity. In that way, exchanges have some data to work with in carrying out token due diligence.Smart contracts have been a point of weakness in recent years, with considerable sums lost through hacks that have exploited smart contract code vulnerabilities. To that end, the SFC insists that as part of token due diligence, new assets will have to undergo smart contract audits performed by independent assessors.Given that the spate of recent crypto platform failures implicated loss of customer deposits, the rule-book considers the need for segregation of client funds. Exchanges will need to segregate funds and can either hold them separately from the assets of the exchange itself or have them held in escrow.

Fueled by a crypto rally and higher overseas stock balances, South Korea’s National Tax Service (NTS) reported a sharp jump in disclosures of offshore accounts. On Aug. 26, the agency said 6,858 taxpayers declared overseas financial accounts this year, with a combined balance of 94.5 trillion won ($67.6 billion), up 38.3% in filers and 45.6% (29.6 trillion won or $21.2 billion) in value from last year.Photo by Piotr Łaskawski on UnsplashCrypto gains drive offshore filingsWithin that, reports of overseas bank deposits and cryptocurrency accounts rose to 46.4 trillion won ($33.2 billion) this year, more than 12% above 2024. That figure excludes stock accounts, which alone totaled 48.1 trillion won ($34.4 billion). Tax officials attributed the increase largely to the surge in crypto prices and higher balances in overseas stock holdings. The trend is underscored by CoinMarketCap data: the crypto market cap now stands roughly at $3.87 trillion, up 86% from $2.08 trillion a year ago. By asset type, the largest share of filers reported overseas bank deposits (3,197 people), followed by cryptocurrency (2,320) and stocks (1,992). By value, stock accounts dominated with 48.1 trillion won ($34.4 billion), compared with 23.5 trillion won ($16.8 billion) in bank deposits and 11.1 trillion won ($7.94 billion) in cryptocurrencies. Korean law requires residents and domestic corporations to disclose foreign financial accounts if their combined balance exceeds 500 million won ($358,000) on any month-end date during the year. Reports must be filed with the local tax office by June of the following year. The NTS said it will step up enforcement against suspected non-filers, using cross-border information-exchange data to verify offshore holdings. Penalties will include administrative fines, penalty notices, criminal referrals, public naming of violators and the collection of back taxes. The agency added that it is preparing to share crypto transaction data under the OECD’s Crypto-Asset Reporting Framework (CARF) and urged anyone subject to the rules to promptly file amended or late reports for overseas crypto accounts. The recent bullish sentiment in crypto, which fueled the uptick in foreign financial disclosures, has also been driving public interest in digital assets and boosting expectations for altcoins. A survey by CoinNess and Kratos conducted between Aug. 18 and 22 with 2,000 respondents found that 38.5% expect a limited bull run in a handful of altcoins, either with strong real-world use cases or serving as the underlying assets of launched ETFs. Another 28.5% predicted gains would remain centered on Bitcoin and Ethereum, while 20.7% anticipated a broader altcoin season reminiscent of past cycles. The remaining 12.3% forecast the end of the rally and the start of a downturn. Won stablecoins: policy and risksPolicy momentum around stablecoins is also picking up in South Korea. The Financial Services Commission (FSC) plans to introduce a bill in October governing won-pegged stablecoins as part of the second phase of the Virtual Asset User Protection Act. The legislation is expected to set rules for issuance, collateral management and internal controls. Amid these changes, companies are showing growing interest in launching won-based stablecoins. Kaia, an EVM-compatible, layer-1 blockchain, recently signed a memorandum of understanding (MOU) with blockchain solutions provider Open Asset to collaborate on projects tied to Korean won–backed stablecoins. The partnership will focus on issuance, distribution, service launches and developing practical use cases. Circle President Heath Tarbert has recently joined calls for a won-backed stablecoin. In an interview with The Korea Economic Daily, he underscored South Korea’s world-class payments infrastructure and said a digital won could help the country play a leading role in blockchain finance. Blockchain transactions, he noted, operate differently from traditional payment rails, making some form of digital currency, whether a stablecoin or a central bank digital currency (CBDC), a necessity. Meanwhile, at a recent meeting with top executives from the country’s four major financial groups, Tarbert ruled out collaborations on won-denominated stablecoins. Instead, he promoted Circle’s dollar-pegged stablecoins and suggested exploring joint initiatives centered around them. Not everyone sees stablecoins as a net positive. NICE Investors Service, a local credit rating agency, warned in a recent report that if banks issue won-based stablecoins, their interest income could suffer. The agency said adoption would likely weigh on banks, benefit securities firms and leave credit card companies largely unaffected. It added that a large shift of funds into stablecoins could shrink banks’ deposit base and weaken their intermediary role. Still, banks that issue stablecoins directly could soften the blow by tapping new fee-based revenue streams.