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Korea Herald
01-07-2025
- Business
- Korea Herald
Stablecoin hype dims BOK's CBDC ambition
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 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.'
Korea Herald
01-07-2025
- Business
- Korea Herald
Stablecoin hype dims BOK's CBDC ambitions
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.'
Korea Herald
20-05-2025
- Business
- Korea Herald
BOK pilots digital currency, but what is it like to use?
Project Han River offers glimpse into Korea's cautious but strategic approach to central bank digital currency adoption Signaling a new chapter in digital finance, the Bank of Korea last month launched "Project Han River," a pilot program for its central bank digital currency, or CBDC. Running from April through June, the trial invites 100,000 individuals to test tokenized deposits, with roughly 60,000 participating as of Monday, according to the BOK. The Korea Herald also took part to see how the system works in practice. The first step involved opening a digital wallet through one of seven participating banks, KB Kookmin, Shinhan, Hana, Woori, NongHyup, IBK and BNK, via their mobile apps. After verifying a bank account and linking it to the wallet, users must transfer funds into the wallet, converting cash into tokenized deposits. Participants can hold up to 1 million won ($719) in digital tokens at a time. Usable, but not smooth Payments are currently accepted at a handful of merchants. This includes 7-Eleven, Kyobo Book Centre, Hanaro Mart and Ediya Coffee for in-store options and Hyundai Home Shopping and Ddangyo food delivery apps for online payments. We tested the system at a 7-Eleven in Seoul. At checkout, we opened the banking app, tapped the wallet tab, entered a password, selected the QR payment option, entered the password again and scanned the code. Though similar to other contactless payments, the process involved noticeably more steps, with minor lags and interface delays making the experience feel clunky. Online payments felt more intuitive, working much like other easy payment systems or digital wallets. Overall, while the experience was comparable to existing mobile payments, tokenized deposits felt less preferable due to small but persistent technical hurdles that are hard to ignore in an era of near-seamless digital finance. After the first phase ends in June, the BOK plans to conduct system maintenance before launching a second round of testing later this year. The next stage will introduce person-to-person transfers and expand the number of participating merchants. More for the system, than shoppers So why launch a CBDC at all, especially when digital payment tools are already fast and widespread? CBDCs are expected to benefit governments and the broader financial system more than individual users. Issued by the central bank, a CBDC is a digital version of cash built on blockchain. It is programmable and traceable, but unlike cryptocurrencies, it is fiat money: fully regulated and anchored to national stability. By digitizing transactions, CBDCs can lower costs, streamline transfers and expand financial access. They also allow governments to distribute emergency and social benefits more directly, avoiding the delays of cash and the complexities of working with financial institutions. For the central bank, the goal goes beyond convenience. The CBDC is seen as a way to future-proof the financial system by preserving access to sovereign money and reinforcing central bank authority in an increasingly digital world. Centralized oversight also boosts transparency and helps deter illicit activity. Internationally, CBDCs could streamline cross-border payments and reduce reliance on private financial networks, supporting closer monetary cooperation. Privacy fears and technical risks Still, the idea is not without pushback. Critics warn that a traceable, state-issued currency could enable financial surveillance or restrict how money is used. Since the launch of the pilot project, petitions opposing CBDC adoption have drawn more than 50,000 signatures on the National Assembly's public petition platform and have been submitted for parliamentary review. A BOK official overseeing the project downplayed privacy concerns, emphasizing that the current trial involves a wholesale model for interbank use. Unlike a retail CBDC, where the central bank issues tokens directly to individuals, the wholesale version issues CBDC to commercial banks. The banks then provide users with deposit tokens, keeping individual transaction data out of the central bank's reach. 'At this stage, the (central) Bank is focused solely on developing a wholesale CBDC system,' the official said. 'Even if a general-use CBDC were to be introduced, it would require far more work and discussion, given the complexity and sensitivity involved.' There are also concerns about systemic risk. A technical failure or cyberattack could disrupt the entire financial system, posing not only daily inconvenience but also national security threats. Digital push grows, but cash will stay Though CBDCs may take time to match the ease of today's digital wallets, Korea's pilot marks a key step toward digital currency — one that could reshape how money is stored, spent and distributed. Policymakers see it as a long-term upgrade to financial infrastructure and a potential shift in the nature of currency itself. The program has also sparked debate among policymakers and academics over how to regulate emerging forms of currency — not only CBDCs, but also private digital assets such as stablecoins and cryptocurrencies. As these assets grow, governments face mounting pressure to update legal frameworks and build public consensus on the future of money. The debate extends beyond Korea. While many countries are advancing CBDCs, the US has paused development, opting instead to back dollar-pegged stablecoins. Still, the BOK has made clear it has no plans to eliminate physical cash. 'The reason we can use various digital payment methods with confidence is because we trust they're backed by a centrally operated system, which allows conversion to cash at any time,' said BOK Deputy Governor Lee Jong-ryeol during a recent briefing. 'Maintaining that trust in the currency system is a core responsibility of the Bank,' he added, noting there are 'no plans to fully phase out physical cash.'
Korea Herald
20-05-2025
- Business
- Korea Herald
BOK's CBDC test: digital won aims to upgrade, not replace, cash
Project Han River offers glimpse into Korea's cautious but strategic approach to central bank digital currency adoption Signaling a new chapter in digital finance, the Bank of Korea last month launched "Project Han River," a pilot program for its central bank digital currency, or CBDC. Running from April through June, the trial invites 100,000 individuals to test tokenized deposits, with roughly 60,000 participating as of Monday, according to the BOK. The Korea Herald also took part to see how the system works in practice. The first step involved opening a digital wallet through one of seven participating banks, KB Kookmin, Shinhan, Hana, Woori, NongHyup, IBK and BNK, via their mobile apps. After verifying a bank account and linking it to the wallet, users must transfer funds into the wallet, converting cash into tokenized deposits. Participants can hold up to 1 million won ($719) in digital tokens at a time. Usable, but not smooth Payments are currently accepted at a handful of merchants. This includes 7-Eleven, Kyobo Book Centre, Hanaro Mart and Ediya Coffee for in-store options and Hyundai Home Shopping and Ddangyo food delivery apps for online payments. We tested the system at a 7-Eleven in Seoul. At checkout, we opened the banking app, tapped the wallet tab, entered a password, selected the QR payment option, entered the password again and scanned the code. Though similar to other contactless payments, the process involved noticeably more steps, with minor lags and interface delays making the experience feel clunky. Online payments felt more intuitive, working much like other easy payment systems or digital wallets. Overall, while the experience was comparable to existing mobile payments, tokenized deposits felt less preferable due to small but persistent technical hurdles that are hard to ignore in an era of near-seamless digital finance. After the first phase ends in June, the BOK plans to conduct system maintenance before launching a second round of testing later this year. The next stage will introduce person-to-person transfers and expand the number of participating merchants. So why launch a CBDC at all, especially when digital payment tools are already fast and widespread? CBDCs are expected to benefit governments and the broader financial system more than individual users. Issued by the central bank, a CBDC is a digital version of cash built on blockchain. It is programmable and traceable, but unlike cryptocurrencies, it is fiat money: fully regulated and anchored to national stability. By digitizing transactions, CBDCs can lower costs, streamline transfers and expand financial access. They also allow governments to distribute emergency and social benefits more directly, avoiding the delays of cash and the complexities of working with financial institutions. For the central bank, the goal goes beyond convenience. The CBDC is seen as a way to future-proof the financial system by preserving access to sovereign money and reinforcing central bank authority in an increasingly digital world. Centralized oversight also boosts transparency and helps deter illicit activity. Internationally, CBDCs could streamline cross-border payments and reduce reliance on private financial networks, supporting closer monetary cooperation. Privacy fears and technical risks Still, the idea is not without pushback. Critics warn that a traceable, state-issued currency could enable financial surveillance or restrict how money is used. Since the launch of the pilot project, petitions opposing CBDC adoption have drawn more than 50,000 signatures on the National Assembly's public petition platform and have been submitted for parliamentary review. A BOK official overseeing the project downplayed privacy concerns, emphasizing that the current trial involves a wholesale model for interbank use. Unlike a retail CBDC, where the central bank issues tokens directly to individuals, the wholesale version issues CBDC to commercial banks. The banks then provide users with deposit tokens, keeping individual transaction data out of the central bank's reach. 'At this stage, the (central) Bank is focused solely on developing a wholesale CBDC system,' the official said. 'Even if a general-use CBDC were to be introduced, it would require far more work and discussion, given the complexity and sensitivity involved.' There are also concerns about systemic risk. A technical failure or cyberattack could disrupt the entire financial system, posing not only daily inconvenience but also national security threats. Digital push grows, but cash will stay Though CBDCs may take time to match the ease of today's digital wallets, Korea's pilot marks a key step toward digital currency — one that could reshape how money is stored, spent and distributed. Policymakers see it as a long-term upgrade to financial infrastructure and a potential shift in the nature of currency itself. The program has also sparked debate among policymakers and academics over how to regulate emerging forms of currency — not only CBDCs, but also private digital assets such as stablecoins and cryptocurrencies. As these assets grow, governments face mounting pressure to update legal frameworks and build public consensus on the future of money. The debate extends beyond Korea. While many countries are advancing CBDCs, the US has paused development, opting instead to back dollar-pegged stablecoins. Still, the BOK has made clear it has no plans to eliminate physical cash. 'The reason we can use various digital payment methods with confidence is because we trust they're backed by a centrally operated system, which allows conversion to cash at any time,' said BOK Deputy Governor Lee Jong-ryeol during a recent briefing. 'Maintaining that trust in the currency system is a core responsibility of the Bank,' he added, noting there are 'no plans to fully phase out physical cash.' jwc@
Korea Herald
24-03-2025
- Business
- Korea Herald
BOK launches digital currency pilot for real-world use
100,000 individuals to try digital currency payments in nationwide pilot project April- June South Korea is set to introduce real-world digital currency payments through a pilot project called 'Project Han River' next month, as part of its efforts to keep pace with the rapidly evolving payment landscape, the country's central bank announced Monday. According to the Bank of Korea, the central bank has issued digital currency to participating local banks, which will, in turn, provide tokenized deposits to a total of 100,000 individuals. Participants will be able to use these tokenized deposits to purchase goods and services from April 1 to June 30. Five major banks — Kookmin, Shinhan, Hana, Woori and NongHyup — will each invite 16,000 users to take part in the pilot, while Industrial Bank of Korea and Busan Bank will gather 8,000 users each. Eligible participants are Korean residents aged 19 or older who hold savings accounts at the participating banks. Registration opens Tuesday, and users can open electronic wallets and convert their savings into tokenized deposits starting April 1. Each user will be able to hold digital tokens worth up to 1 million won ($680) at a time, with a total cap of 5 million won for the duration of the test period. Payments can be made by scanning QR codes, and both online and offline transactions will be supported at local bookstores, convenience stores, coffee shops, supermarkets and delivery platforms. 'For end users, the experience may not feel drastically different, as we've minimized changes compared to existing mobile payment services for convenience,' said Kim Dong-sup, head of the BOK's digital currency strategy team, during a press briefing Monday. 'But those participating in the pilot will get to experience future financial technology as early adopters. The digital currency has advantages — payments can be settled instantly, much like cash, which improves liquidity for vendors. Also, the commission fees are much lower compared to other payment services, since card issuers are not involved.' Although the newly issued digital currency is technically a central bank digital currency or CBDC, the BOK has chosen to avoid using the term for this project, noting that retail CBDCs are not part of the current test. Instead, the digital currency is issued in the form of tokenized deposits, making it a wholesale CBDC designed primarily for institutional infrastructure. 'This pilot is about building infrastructure where banks can explore new technologies in a safe and efficient environment, while preserving the innovative qualities of tokenized assets like stablecoins and cryptocurrencies,' Kim added. The BOK and financial regulators — including the Financial Services Commission and Financial Supervisory Service — will use the results of the pilot to explore further real-world applications of digital currency. 'Digital currency allows for programmable payments — for instance, parents could restrict children's pocket money to be used only on school supplies, or payments could be authorized only if a certain test score is achieved,' Kim explained. 'This opens the door for public institutions, regional governments and charities to distribute subsidies or donations with conditions attached to ensure their intended use.'
