Key Takeaways:
- The Bank of Korea has suspended its CBDC pilot, awaiting clarity on the government’s stablecoin policy.
- Participating banks found the CBDC test too costly and favor developing their own stablecoins.
- President Lee’s administration is backing legislation to support the issuance of won-backed stablecoins.
South Korea’s central bank has temporarily paused its central bank digital currency (CBDC) pilot as both commercial banks and the newly elected government shift focus toward stablecoins. The Bank of Korea announced the decision over the weekend, citing the need to align with the government’s emerging pro-stablecoin agenda.
The halt comes just as the second round of CBDC testing was due to begin later this year, raising questions about the future of the country’s state-backed digital currency project.
Stablecoin-Friendly Government Signals Strategic Shift
President Lee Jae-myung, elected on a pro-crypto platform, has championed the use of stablecoins as part of his broader digital asset strategy. His administration recently introduced legislation that would allow private companies to issue won-backed stablecoins, provided they hold at least 500 million Korean won (~$370,000) in equity capital.
This pivot in policy appears to have influenced the central bank’s decision. A senior official from one of the seven participating banks told Yonhap News Agency that the CBDC program’s delay reflects the need to determine how such a digital currency would coexist with stablecoins.
Banks Prefer Stablecoins Over Costly CBDC Program
Commercial banks have reportedly grown disillusioned with the CBDC trial, describing it as costly and lacking a clear roadmap for commercialization. Some institutions criticized the Bank of Korea for failing to specify how the CBDC would be integrated into the financial system or bring economic returns.
According to reports, several banks involved in the CBDC pilot are now turning their attention toward developing and issuing their own stablecoins. Eight major banks — including KB Kookmin, Shinhan, Woori, and NongHyup — are reportedly working together to launch a won-pegged stablecoin by 2026.
Fintech Stocks React to CBDC News
The announcement had a mixed impact on South Korea’s fintech sector. Shares in KakaoPay Corp dropped 7%, while Hecto Financial saw a 5% decline. Meanwhile, banking groups KB Financial and Shinhan both experienced modest gains, signaling investor optimism about their stablecoin initiatives.
Also Read: Global Surge in CBDC Adoption: How 2024 is Shaping the Future of Digital Currencies
These market moves underscore the shifting sentiment among Korean financial players, who seem increasingly convinced that stablecoins — not central bank-issued currencies — hold more promise for real-world application and profitability.
South Korea’s central bank may have hit the brakes on its CBDC project, but the country’s digital currency journey is far from over. With banks pushing for stablecoin development and a crypto-friendly government in power, the nation could soon lead the way in private-sector digital currency innovation.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
I’m a crypto enthusiast with a background in finance. I’m fascinated by the potential of crypto to disrupt traditional financial systems. I’m always on the lookout for new and innovative projects in the space. I believe that crypto has the potential to create a more equitable and inclusive financial system.
