Stablecoin hype dims BOK's CBDC ambition
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 roadmap for integrating digital assets into its financial system, even as the transition to digital finance approaches a pivotal moment.
BOK backs off
The BOK recently notified local banks that the second phase of its central bank digital currency testing program, titled 'Project Han River,' has been put on hold.
In April, the central bank launched the first phase of a pilot program to test the feasibility of a digital currency. Over 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 the 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 about the project, burdened by the costs of setting up the infrastructure for testing. The banks reportedly spent a combined 30 billion won ($22 million), a significant amount considering the absence of a clear timeline for full-scale implementation.
Are stablecoins, CBDCs 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.
In 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 stablecoins and CBDCs function as forms of payment, with stable values pegged to a fiat currency. However, they are also fundamentally different: CBDCs are state-issued payment instruments, while stablecoins are operated by the private sector.
'CBDCs are advantageous in terms of financial stability and settlement finality, while stablecoins excel in technological innovation and global scalability,' Lee Jung-su, associate professor of international financial transactions, said at a policy meeting held in May.
'The closed nature of CBDCs poses limitations in terms of international interoperability and geopolitical risks. In contrast, stablecoins offer greater flexibility with cost efficiency and cross-chain compatibility.'
Though the two digital currencies are not mutually exclusive, the growing momentum for stablecoins could delay the rollout of a CBDC. If a stablecoin establishes itself as a major component of the digital asset market, the CBDC could lose ground.
On the verge
With a CBDC set aside for the moment, the question now lies in who will be allowed to issue won-backed stablecoins.
The ruling Democratic Party of Korea has proposed allowing nonbanking entities to issue them. The BOK remains cautious on the move, however, as the unchecked issuance of won-based stablecoins by nonbanking entities could undermine the effectiveness of the bank's policy tools.
Experts highlight that Korea is at a crucial turning point in shaping its digital finance landscape.
'When it comes to changes in the financial 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 from that perspective, nonbanking institutions can play a bigger role.'
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Korea Herald
a minute ago
- Korea Herald
Toss Securities profits surge 452% in H1
Toss Securities, the online brokerage arm of financial technology giant Toss, posted nearly a fivefold jump in first-half operating profit, setting new records across all key indicators. Operating profit reached 168.9 billion won ($122.1 million) in the January-June period, up 452 percent from a year earlier and surpassing the full-year total of 149 billion won in 2024 — the year the company first turned a profit. Operating revenue doubled from last year to 354 billion won, while net profit climbed 283 percent to 131.4 billion won, nearly matching last year's annual figure. The surge was fueled by continued gains in the company's overseas stock trading business, which dominates the domestic market with its convenience and innovative features. In March, Toss Securities extended after-hours trading for US stocks by two hours and introduced real-time translation of foreign companies' earnings calls, expanding data access for Korean traders. Upgrades to its web trading system also boosted transaction activity, the company said. In the second quarter, overseas stock trading volume jumped 166 percent from a year earlier, with trading fees up 177 percent and currency exchange fees rising 129 percent. Toss Securities plans to build on the momentum in the second half by adding new products and services. It will launch overseas stock lending and options trading, while further enhancing its web trading system to deliver a smoother and more reliable user experience.
![[Photo News] APEC 2025 collector coins](/_next/image?url=https%3A%2F%2Fwimg.heraldcorp.com%2Fnews%2Fcms%2F2025%2F08%2F14%2Fnews-p.v1.20250814.ff0c061099044c1a8ca1f2a1ef8ace9a_T1.jpg&w=3840&q=100)
Korea Herald
30 minutes ago
- Korea Herald
[Photo News] APEC 2025 collector coins
The Bank of Korea will issue two commemorative coins on Sept. 9 to celebrate Korea's hosting of the APEC 2025 summit in Gyeongju, North Gyeongsang Province. The coins are designed to symbolize economic strength and regional cooperation. Reservations run Sept. 8–26 via KOMSCO, Woori Bank and NongHyup Bank. (The Bank of Korea)
![[Inside K-AI] How benchmarks shape AI battlefield -- and where Korea's models stand](/_next/image?url=https%3A%2F%2Fwimg.heraldcorp.com%2Fnews%2Fcms%2F2025%2F08%2F14%2Fnews-p.v1.20250814.bff0185742694af599cedae774326d8f_T1.jpg&w=3840&q=100)
Korea Herald
3 hours ago
- Korea Herald
[Inside K-AI] How benchmarks shape AI battlefield -- and where Korea's models stand
Standardized tests offer reality check, separating marketing buzz from genuine AI performance The race for sovereign AI is intensifying, with countries rushing to build their own large language models to secure technological independence. Korea is no exception -- the government has tapped five leading companies to spearhead the creation of homegrown models tailored to national priorities. In this high-stakes contest, The Korea Herald launches a special series exploring Korea's AI industry and its standing in the global arena, and the rise of Korean-language-focused systems. This first installment looks at benchmarks -- the scorecards of the AI world -- and how Korean models measure up on the tests that are shaping the race. – Ed. AI has swept across the tech industry, powering chatbots, search engines and productivity tools. OpenAI's ChatGPT -- which first ignited the global buzz in November 2022 -- and other big tech models sit firmly in the top tier, but the surge of large language models shows no sign of slowing. Each new arrival is touted as the smartest or the first of its kind, outscoring the rest. That raises a key question: how are these models really evaluated, and which is the true leader? The answer lies in benchmarks -- the standardized tests that have become the AI world's scoreboard, where companies race to climb the rankings and prove their worth. In July, South Korea's Upstage pulled off an unexpected breakthrough when its 31-billion-parameter Solar Pro 2 became the only Korean model listed as a "frontier model" by UK-based benchmarking platform Artificial Analysis. It ranked just outside the global top 10 for intelligence and placed first in Intelligence vs. Cost to Run, a measure of how much capability a model delivers for its operating cost. The result prompted swift reaction from Elon Musk, whose AI company xAI is also a relative newcomer battling entrenched leaders. In a post on X, he insisted his Grok 4 model "remains No. 1" and is "rapidly improving" -- a pointed defense that reflects how sensitive and strategic leaderboard positions have become in the global AI race. Launching its latest GPT-5 model last week, OpenAI also promoted the model as "much smarter" than earlier ones and cited scores in several key benchmarks measuring performance in areas such as math, coding and visual perception. "For engineers, benchmarks serve as a barometer for how the LLM they developed fares in the global competition, and as a compass for its future development," an official of an LLM startup said. Constant race to set new records Much like human IQ tests or university entrance exams, the benchmarks offer a structured way to measure various capabilities, from language comprehension and reasoning to code generation, under the same conditions. When an LLM tops a benchmark, it is deemed State-of-the-Art (SOTA) for that task -- a title that can quickly change as new models are released. MMLU, which is one of the most widely used benchmarks, poses more than 15,000 multiple-choice questions across 57 subjects. HumanEval and LiveCodeBench test coding ability, while AIME and MATH-500 gauge mathematical reasoning. For instance, OpenAI boasted that its new GPT-5 achieved SOTA in math, scoring 94.6 percent on AIME 2025 without tools; in real-world coding, scoring 74.9 percent on SWE-bench Verified; and in multimodal understanding, achieving 84.2 percent on MMMU, among others. Korean LLM firms are also working fiercely to set new records. Releasing its most up-to-date model Exaone 4.0 on July 15, LG AI Research promoted its strong performance in advanced benchmarks. In MMLU-Pro, the 32-billion-parameter model scored 81.8 percent, ahead of Microsoft's Phi 4 reasoning-plus with 76 percent and Mistral's Magistral Small-2506 at 73.4 percent. In AIME 2025, it also outperformed those rivals with a score of 85.3 percent. As LLMs advance rapidly, the benchmarks themselves are also evolving. MMLU now offers a Pro edition with more complex reasoning questions. In January, a coalition of 1,000 experts launched Humanity's Last Exam -- a 2,500-question test spanning classical literature to quantum chemistry. But what often confuses the public is the endless list of scores. Experts note that because LLMs can do so many different things, each has its own strengths -- making it difficult to declare one model "the best" based on a single benchmark. To make sense of the growing number of benchmark results, platforms like Hugging Face provide leaderboards that compile scores from multiple tests and rank models accordingly. The Artificial Analysis Intelligence Index is another prominent one that aggregates results from eight advanced benchmarks -- including the MMLU-Pro, Humanity's Last Exam and AIME -- to produce an overall score. With strong scores across multiple benchmarks, LG's Exaone and Upstage's Solar Pro 2 were the only Korean LLMs to make the Artificial Analysis index in July. At the time of release, Exaone 4.0 ranked 11th globally in the Intelligence Index, standing shoulder to shoulder with big brands such as Google's Gemini, OpenAI's ChatGPT and Alibaba's Qwen. Upstage's Solar Pro 2 went a step further, becoming the only Korean model recognized in the leaderboard's Frontier Language Model Intelligence category -- reserved for the highest-performing systems at the cutting edge of research and development. It also topped the Intelligence vs. Cost to Run metric. 'It is fair to say Korean models are quite competitive, considering their rivals are often several times larger," an LG official said, explaining how models like Grok 4, which held the top spot in the July index, has a staggering 1.7 trillion parameters -- meaning it used far more resources in training to achieve the intelligence score. The list has since updated its benchmarks with more challenging tests and added newly released models such as GPT-5 -- which overtook Grok 4 for the top spot -- nudging the Korean models down slightly, though both remain in the global index. LG AI Research and Upstage have both been named among the government's five consortia tasked with leading the development of South Korea's proprietary AI foundation models, alongside Naver Cloud, SK Telecom and NC AI. Naver, which became the third company in the world to develop a hyperscale AI model with HyperClova in 2021, has since upgraded its foundation model and in June released HyperClova X Think. The company cites its model's strength in its deep understanding of the Korean language. Going beyond benchmarks The way benchmarks gain recognition is similar to how a new measurement scale in the social sciences becomes a standard. After being published in a peer-reviewed paper, it should be validated at a reputable academic conference and adopted by the global AI community, an industry official explained. As crowded as the AI field is becoming, with one LLM after another touting new benchmark scores, the results still serve an important purpose: they offer guidelines for engineers in measuring their progress. "Global big techs still lead, but players in countries like China, France and Korea are closing in, and the race is intense," an LG official said. "The presence of Korean companies on leaderboards and key benchmarks shows the country is not only catching up but is firmly in the game." At the same time, the rollout of GPT-5 shows that real-world user experiences are just as important as strong performances in advanced benchmark tests. Launched on August 7, the highly anticipated OpenAI model shot to the top in the Artificial Analysis Intelligence Index, but has faced backlash from users who claim it feels "downgraded," citing a blander personality and surprisingly basic mistakes. Lee Kyoung-jun, a big data analytics professor at Kyung Hee University, stressed that the true measure of an LLM's competitiveness lies in its practical utility. "Korean LLMs are making strides in benchmarks, but it's important to note that even major models like Exaone are having little impact on the general public for now," Lee said. "Efforts must continue to ensure these excellent models are adopted in real use cases and achieve widespread adoption." herim@
