In a significant shift, the Bank of Korea (BOK) has decided to pause its Central Bank Digital Currency (CBDC) initiative. This decision comes as the South Korean government intensifies its focus on stablecoins, leaving stakeholders in the CBDC project without clear guidance for the future.
BOK Halts CBDC Testing Phases
Recent reports from Yonhap News Agency indicated that the Bank of Korea has informed banks involved in the Han River Project about the indefinite suspension of the second phase of CBDC testing.
Initially, the BOK along with seven participating banks commenced the first phase in April, targeting a group of 100,000 financial consumers, with plans to conclude by June 30. The second phase was expected to begin by the year-end, aimed at testing various functionalities like peer-to-peer transfers and enhancing payment merchant access.
Concerns from banks regarding the financial implications of the project surfaced, as they highlighted the lack of a viable commercialization strategy. This prompted the BOK to suspend further developments. Financial institutions expressed the need for a clear roadmap from the Bank of Korea to justify ongoing costs.
In light of these challenges, banks suggested the formation of a collaborative task force involving key stakeholders to create a comprehensive strategy for the future of CBDC, including commercialization approaches beyond initial tests.
With the rise of stablecoins, the BOK now finds itself reassessing its position and timeline related to digital assets, amid escalating discussions in both the National Assembly and the private sector.
According to insights from a senior bank official, the Bank of Korea indicated it would take a cautious approach, stating it would monitor developments around stablecoin legalization and the evolving distinctions between CBDCs, stablecoins, and deposit tokens.
Another official noted a marked change in sentiment following recent meetings between BOK officials and bank leaders, revealing that discussions had shifted towards a greater acceptance of stablecoins.
Despite the current halt, there are suggestions that the BOK may revisit CBDC testing in 2026, with indications of potential advancement in early next year.
Banks Shift Focus to Stablecoin Legislation
In the wake of this development, banks engaged in the CBDC project are pivoting towards stablecoin issuance as legislative backing grows, indicating readiness for collaboration with other financial entities.
Earlier this month, Min Byeong-deok, a member of the ruling party, introduced a new bill aimed at providing a clearer regulatory framework for crypto assets in South Korea.
The proposed Digital Assets Basic Act seeks to complement existing regulations and create a structured licensing system for stablecoin issuers, thereby solidifying legal ground for the cryptocurrency market.
The banking sector is exploring collaborative models, potentially forming joint ventures to issue stablecoins while engaging with non-bank firms to strategize for upcoming regulations.
An official from the bank acknowledged uncertainty about whether traditional banks, tech giants, or fintech firms will lead stablecoin issuance, emphasizing the necessity for preparedness in all scenarios as legalization approaches.
Furthermore, collaboration with fintech companies is deemed essential for scalability. Banks are actively engaging not only with the BOK and other financial institutions but also holding discussions with payments firms, cryptocurrency exchanges, and blockchain tech providers to enhance stablecoin issuance readiness.
