The Central Bank of South Korea has temporarily suspended its Central Bank Digital Currency (CBDC) project due to the rising adoption of stablecoins linked to the local currency and support from the President. According to Yonhap News Agency, the Bank of Korea informed the banks involved in the Hangang CBDC project about the postponement of the second-phase digital currency trials. This decision came less than three months after the pilot project began, enabling 100,000 citizens to use CBDCs at local vendors. The first phase of the project is set to conclude this month.
Central Bank Adjusts its CBDC Approach
The South Korean Central Bank stated in its notice to banks that it intends to monitor regulatory developments surrounding stablecoins. The involvement of banks brings substantial financial burden, and a concrete implementation plan is yet to be established. According to an anonymous banking executive, the central bank has yet to clarify how CBDCs, stablecoins, and bank deposit tokens can coexist.
The seven banks participating in the project invested an average of 5 billion South Korean won (approximately 3.7 million dollars) into the CBDC pilot. The uncertainty regarding the project’s future has become a significant concern for these banks. Though the central bank’s decision has not halted the pilot’s progress, it has postponed plans to advance to the next phase.
Stablecoin Momentum Drives Toward New Policies
A significant factor behind the shift from CBDCs to stablecoins is the newly elected President Lee Jae Myung’s firm commitment. Lee aims to legalize currently prohibited stablecoins pegged to the South Korean won and promote the development of a local stablecoin market to prevent capital flight. During his campaign, Min Byeong-deok, a ruling party lawmaker and authority on cryptocurrencies, proposed a legislative bill outlining a licensing regime and requirements for stablecoin issuers.
The momentum in the stablecoin sector has gained further traction with two major IT companies, Kakao and Naver, applying for stablecoin registration through their mobile payment service platforms. Local reports indicated that including participants from the CBDC pilot, the country’s eight leading banks plan to establish a joint venture to issue a stablecoin tied to the South Korean won. Lee Chang-yong, a South Korean Central Bank official, expressed positive views on the necessity of stablecoins pegged to the won, provided that risks are managed appropriately.
South Korea’s activity around stablecoins mirrors developments in the United States, where the GENIUS Act, aimed at establishing a legal framework for stablecoins pegged to the US dollar, is rapidly advancing under the pressure of President Donald Trump. According to official data, by the end of 2024, one in five Koreans will own and actively trade cryptocurrencies in a country hosting one of the world’s largest spot cryptocurrency exchanges.
