Overview
- The Bank of Korea is set to initiate Phase 2 of its CBDC pilot in September, involving nine banks and allowing up to 500,000 users to engage in live deposit token testing.
- During Phase 1, which occurred from April to June 2025, there were 114,880 transactions made across 81,000 wallets.
- Phase 2 will incorporate biometric payment options, peer-to-peer transfers, and real government subsidy distributions.
The Bank of Korea conducted a three-month pilot for its central bank digital currency (CBDC) last year, during which 81,000 individuals created wallets, but only a mere 42% utilized them for transactions.
The upcoming phase of the CBDC initiative is scheduled to commence in September, featuring nine banks and the potential for 500,000 users to actively spend the tokens, with actual government funds involved this time.
On Monday, the central bank revealed the expansion of Project Hangang, which is its CBDC initiative aimed at creating a blockchain-based version of the Korean won, according to a report from Yonhap News Agency. A Bank of Korea representative stated, "From the second phase, we will lay the groundwork for commercialization," as reported by Yonhap.
Phase 1, which ran from April through June 2025, involved seven banks and 12,000 merchants, resulting in 114,880 transactions. The HRF CBDC tracker indicates that the banks collectively invested around 30–35 billion won to develop the necessary infrastructure.
To tackle engagement issues, Phase 2 will introduce features that mimic traditional banking services. These enhancements include biometric fingerprint authentication, person-to-person transfers, automatic top-ups from linked bank accounts when balances are low, recurring payments, cash receipt generation, and interest payments.
Additionally, this phase will test the distribution of government subsidies using programmable tokens for the first time.
The Bank of Korea operates a wholesale CBDC, which is intended for transactions between financial institutions rather than for public use. Commercial banks will then convert this into deposit tokens that consumers and businesses can use for payments. Kim Dong-seop, the head of the bank's Digital Currency Planning Team, described this structure as "a middle ground between a CBDC and a stablecoin."
For everyday users, this model could mean the direct transfer of government benefits into a digital wallet instead of waiting for physical vouchers or checks. The pilot will also evaluate if deposit token payments can reduce the interchange fees imposed by card networks, a significant cost for high-volume retailers.
Phase 2 will feature programmable deposit tokens with spending restrictions, such as funds designated for specific purposes, vendors, and time frames, thereby replacing traditional manual audits and reducing fraud risks at the point of disbursement.
This implementation allows the Bank of Korea enhanced oversight over how citizens utilize government funds allocated for specific objectives.
Joining the original seven banks—KB Kookmin, Shinhan, Hana, Woori, Nonghyup, Industrial Bank of Korea, and BNK Busan—are Gyeongnam Bank and iM Bank. The pilot will be conducted without a definitive end date.
Shin Hyun-song, the newly appointed Governor of the Bank of Korea, highlighted Project Hangang in his inaugural policy address following his appointment in April 2026. Meanwhile, Hana Bank has begun developing systems for a won-backed stablecoin, which would be a privately issued digital currency pegged to the Korean won, in anticipation of upcoming legislation central to a stablecoin debate in Seoul that began in mid-2025. The Ministry of Economy and Finance has also revealed plans to revise a 76-year-old national asset law to categorize cryptocurrencies as national assets.
Despite their potential, CBDCs face significant debate. The programmability that attracts regulators also raises concerns among critics. Restrictions that tie government funds to specific vendors can easily extend beyond subsidies, leading to potential expirations, spending limitations, or wallet freezes without judicial oversight. Unlike cash, CBDC transactions are recorded on a ledger accessible to the central bank and its partners.
Civil liberties advocates have identified this as a fundamental issue with CBDCs in general, not just South Korea's version. The digital yuan in China has already been implemented with expiration dates on certain stimulus payments, framed as an anti-hoarding strategy by Beijing but criticized by many as financial coercion. Researchers from Lawfare warn that the e-CNY could establish a global standard for state-controlled financial surveillance. The overarching concern remains consistent: programmable money comes with conditions, and those conditions can be expanded at any time.
In contrast, the United States is moving in a different direction. A four-year prohibition on CBDC issuance was enacted on July 11, as the 21st Century ROAD to Housing Act took effect without President Donald Trump's signature after the constitutional 10-day window elapsed, following his refusal to sign it over unrelated voting legislation demands.