Stablecoin hype dims BOK's CBDC ambitions

Korea Herald

01-07-2025

Central bank's 'Han River' project loses traction due to high cost, low feasibility
South Korea is poised to take a major step in digital finance with the push for a stablecoin tied to the Korean won. But as enthusiasm for private-led innovation grows, the Bank of Korea's central bank digital currency project appears to have lost steam.
The shift underscores the country's lack of a coherent road map for institutionalizing digital assets while it reaches a pivotal moment in its digital finance transition.
BOK backs off
The BOK recently notified local banks that the second part of its central bank digital currency testing program, titled 'Project Han River,' has been put on hold.
In April, the central bank kicked off the first part of the pilot test, testing the feasibility of a digital currency. Through a three-month test period, participants used tokenized deposits to purchase goods and services.
The second leg of the pilot project was to take place in the fourth quarter, testing additional features such as person-to-person transfers and a simplified verification process. But the BOK has suspended the plan.
"We plan to resume testing after thoroughly reviewing institutional changes, such as the clarification of stablecoin-related legislation. Once uncertainties are somewhat resolved, we will discuss effective testing measures with participating institutions," a BOK official said.
The suspension stems from the participating banks' uneasiness with the project, burdened by excessive costs of setting up the infrastructure for testing. The banks reportedly spent a combined 30 billion won ($22 million) on the first part of the project, a large amount when considering the absence of a clear timeline for full-scale implementation.
According to a report filed by the Korea Federation of Banks, an entity representing the local lenders here, the banks shared they have 'different thoughts' on the CBDC with the BOK in a meeting held with Gov. Rhee Chang-yong on June 23.
Are stablecoin, CBDC at odds?
While banks remain doubtful about the implementation of a CBDC, they are eager to take the lead in the won-backed stablecoin market.
Over recent weeks, banks have been competitively filing trademark applications, combining KRW, the currency code for the Korean won, with abbreviations of their names. They are also launching task forces and seeking to launch joint ventures with tech partners.
"Stablecoins are not a far-fetched idea. They have already become a part of the economy," an official from a local lender said. "Stablecoins allow for more concrete business discussions, while the institutionalization of CBDCs remains uncertain."
Both serve a similar role as a means of currency, maintaining a steady valuation by being pegged to a fiat currency.
Though the two digital currencies are not inherently contradictory, the growing momentum for stablecoins could push back the incorporation of CBDC. If a stablecoin establishes itself as a major means of the digital asset market, the CBDC could lose ground.
On the verge
The question now lies in who will be allowed to issue the new financial instrument.
The ruling Democratic Party of Korea has proposed to allow nonbanking entities to issue won-backed stablecoins. The BOK remains cautious on the move, as the unchecked issuance of won-based stablecoins by nonbanking entities could undermine the effectiveness of its own policy tools.
Experts highlight that Korea is at a crucial turning point in shaping its digital financing landscape.
'When it comes to changes in the finance sector, it is always a question of finding a balance between stability and innovation. For the time being, Korea is on the brink of transformation,' said Lee Hyo-seob, a senior research fellow at Korea Capital Market Institute.
'Now is the time to prioritize innovation and in such perspective, nonbanking institutions can play a bigger role.'