SK government begins to shut down virtual currency market

Posted on : 2018-01-12 16:33 KST Modified on : 2019-10-19 20:29 KST
Justice Minister criticizes exchanges as akin to gambling parlors
The virtual currency Bitcoin
The virtual currency Bitcoin

The South Korean government has begun steps toward shutting down virtual currency exchanges – a stern response to the continued overheating seen there despite intensified regulations since Sept. 2017.

“As a government plan, we are preparing legislation to ban transactions through virtual currency exchanges, with targets up to and including the closure of the exchanges,” Justice Minister Park Sang-ki said in a New Year’s press conference held at the Gwacheon Government Complex on Jan. 11.

“Virtual currency exchanges are taking on what amounts to aspects of gambling,” Park continued.

“I don’t think that ‘virtual currency’ is even the correct term – this is more like ‘virtual tokens,’” he added.

A date for the cryptocurrency exchange shutdown has not yet been coordinated. The Ministry of Justice said it was “currently in discussions with related agencies after developing a ministry plan for a special law including the shutdown of exchanges,” but added that “nothing has been finalized” on the specific content of the legislation or its submission and implementation dates.

The administration’s decision to pursue the ultra-hardline move of shutting down cryptocurrency exchanges altogether comes in response to overheating in the market. Some critics have accused it of hesitancy in its response, either by flip-flopping without clear standards or failing to coordinate opinions at all.

Explaining the reason for the ministry’s decision to pursue a shutdown of virtual currency exchanges, Park said that transactions are “taking on an aspect reminiscent of speculation or gambling.”

“The fact that the media has begun talking about the ‘kimchi premium’ is because people overseas have concluded that South Korean transactions have been abnormal,” he added.

Park’s message is that the cryptocurrency exchanges brokering the transactions are to be eliminated because they constitute “private gambling parlors” banned by current law. The term “kimchi premium” refers to the phenomenon of South Korean cryptocurrency prices exceeding international rates.

“The amounts are worryingly large when you consider things like the damages individuals stand to suffer when the bubble bursts,” Park said. The use of the term “damages” rather than “losses” by the Minister of Justice – who typically uses strictly legal language – was seen as betraying perceptions that signs of fraud and other illegal activities are present in the current domestic trading market.

Following a Dec. 28 pan-governmental meeting on cryptocurrency response measures, the administration announced that the Ministry of Justice had proposed enacting a special law to close down the exchanges. At the time, a shutdown was just one of several measures under examination by the government. Agencies related the economy focused more on managing the market’s stability, seeing cryptocurrency as a potential catalyst for the Fourth Industrial Revolution.

Deepening concerns in the administration over ‘kimchi premium’ phenomenon

But Financial Services Commission (FSC) vice chairman Kim Yong-beom explained that “concerns within the administration have deepened as the kimchi premium phenomenon has persisted.”

“The government’s response plan is going to be something along the lines of what Minister Park said,” Kim predicted.

As if targeting differences among the relevant government agencies Park stressed that the Ministry of Justice “has held a negative position [on cryptocurrencies] from the beginning and consistently stated this position to the relevant agencies.”

“Enactment of a special law has been established as the Ministry of Justice’s position without any differences among agencies, and it will be implemented,” he said.

But the Ministry of Strategy and Finance (MOSF) has remained noncommittal. Deputy Prime Minister and Minister of Strategy and Finance Kim Dong-yeon made no comment on the matter amid a flurry of questions from reporters the same day asking for his position on Park’s remarks. Do Gyu-sang, head of MOSF’s economic policy bureau, said the Ministry of Justice has “already stated its position several times regarding the closure of cryptocurrency exchanges,” adding that the issue was “currently being discussed by a pan-governmental task force.”

A display board in the Jongno District in Seoul shows the market price of Bitcoin. (Yonhap News)
A display board in the Jongno District in Seoul shows the market price of Bitcoin. (Yonhap News)
Mixed messages could exacerbate market instability

Some critics contend the mixed signals within the administration could exacerbate market jitters. Concerns have also been raised that the harsh response measures may come under pressure from hardliners in the Ministry of Justice who lack an understanding of the market.

“If the exchanges are actually closed down, funds are going to go overseas, and the transactions will end up going underground,” said Dongguk University Blockchain Research Center director Park Sung-joon.

“But if the P2P transaction market is opened up, there are concerns that the situation will become even more unmanageable as brokers and swindlers start appearing,” Park added.

“This isn’t a simple matter.”

By Kim Kyung-rak, Kim Yang-jin, and Park Su-ji, staff reporters

Please direct questions or comments to [english@hani.co.kr]

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