Pilot Expands to 9 Banks for Real-World Testing
On March 18, the Bank of Korea initiated the second phase of its wholesale central bank digital currency (CBDC) pilot, expanding the program to include nine commercial banks for real-world testing. This new phase adds Kyongnam Bank and iM Bank to the original seven participants, who will now test large-scale, won-pegged deposit tokens for nationwide payments. The core objective is to create a low-cost payment alternative that can significantly reduce the transaction fee burden currently imposed by credit cards on corporations and small merchants.
Participating banks are actively securing diverse use cases, such as large businesses and small merchants with high public relevance and significant payment fee burdens, focusing on the potential for drastically reduced fees when using digital currency for payments.
— Kim Dong-sub, Head of Digital Currency Planning, Bank of Korea.
Government Subsidies to Begin in First Half of 2024
The pilot will immediately test practical applications, including nationwide consumer payments and peer-to-peer transfers, a feature that presented challenges during Phase 1. The government plans to begin disbursing public subsidies through the digital currency system within the first half of this year, marking a significant step toward official adoption. Electric vehicle charging infrastructure subsidies are expected to be among the first use cases. Looking further ahead, the Bank of Korea also outlined plans to enable the digital currency as a payment method for "AI agents," which would allow artificial intelligence systems to independently purchase goods and services.
CBDC Advances as Private Stablecoin Rules Stall
The central bank's pilot moves forward at a critical time for South Korea's digital asset market. The country's comprehensive Digital Asset Basic Act (DABA) has been delayed by regulatory disagreements, particularly over which entities will gain the legal authority to issue KRW-pegged stablecoins. This regulatory deadlock provides an opening for the Bank of Korea to establish a government-endorsed digital payment rail, potentially setting a national standard before private sector stablecoins are formally regulated. The initiative aligns with a broader push for tighter crypto oversight in the country, signaling a preference for controlled, state-backed innovation in digital finance.
