South Korea's central bank has decided to pause its digital currency pilot program while major banks in the country actively develop their stablecoins, marking a significant shift in the financial landscape.
Political Winds and Industry Pushback
The Bank of Korea (BOK) informed participating banks that it is putting on hold the second stage of its 'Hangang Project' CBDC test, which has already been conducting trials among 100,000 citizens and seven large banks. This move comes unexpectedly just three months into the pilot and follows mounting pressure from the financial sector and newly elected President Lee Jae-myung, who has prioritized stablecoin legalization. Banks have increasingly voiced their concerns regarding the costs associated with the CBDC pilot, mentioning investments of up to $4.4 million on infrastructure and marketing.
Banks Act Quickly as Policy Changes
As the CBDC initiative stumbles, South Korea's top lenders are racing to introduce their own KRW-backed stablecoins. KB Kookmin Bank has already filed multiple stablecoin-related trademark applications, with Shinhan Bank and others collaborating to issue regulated tokens. These banks are leveraging their extensive branch networks and customer bases to position stablecoins as the next phase of digital payments, focusing on lower fees, faster settlements, and increased traceability.
Regulatory Hurdles and Their Consequences
The BOK's action raises questions about the coexistence of CBDCs, stablecoins, and bank deposit tokens within a single financial system. Banks have requested regulatory guidance and a clear path to commercialization before further investing in CBDC infrastructure. The central bank is now shifting its focus to monitoring stablecoin legislation and restructuring its internal units. Concurrently, the push for stablecoins introduces risks, with legislators and regulators seeking to maintain a balance between innovation, financial safety, and consumer protection.
The pause of the CBDC project in South Korea and the emphasis on stablecoins reflect significant changes in the digital currency policy. As regulators and banks strive to define the future of money, the global community eagerly watches to see if stablecoins will overshadow CBDCs in the upcoming era of global finance.
