South Korea’s central bank, the Bank of Korea (BOK), has recently paused its central bank digital currency (CBDC) project. This decision comes as the country shifts its focus toward developing and regulating stablecoins backed by the Korean won.
CBDC Project on Hold
The BOK had been working on a CBDC pilot program, known as Project Han River, which began earlier this year with a consortium of seven banks. The second phase of this project was scheduled for the fourth quarter of 2025 and was expected to include features like peer-to-peer transfers and merchant payments. However, banks raised concerns over high costs and the lack of a clear commercialization plan, leading the central bank to reassess the project’s future. As a result, the BOK has informed participating banks that discussions on the second phase will be temporarily paused. (pulse.mk.co.kr)
Shift Toward Stablecoins
Instead of continuing with the CBDC project, the BOK is now focusing on establishing a regulatory framework for stablecoins pegged to the Korean won. This move aligns with President Lee Jae-myung’s agenda to accelerate the development of KRW-backed digital tokens. Since taking office earlier this month, President Lee has prioritized the institutionalization of these stablecoins as a strategic financial initiative. His administration supports a licensing regime that would allow companies with as little as ₩500 million ($370,000) in equity capital to issue stablecoins, subject to regulatory approval. (theedgemalaysia.com)
Regulatory Framework and Industry Response
The proposed legislation, introduced under the Digital Asset Basic Act, outlines licensing requirements for issuers and includes provisions for reserve management and user protection. The BOK has expressed cautious support for the issuance of won-based stablecoins but has voiced concerns about managing foreign exchange and capital flows. Governor Rhee Chang-yong highlighted the risk that easier exchange between won-based and U.S. dollar-based stablecoins could increase demand for the latter, complicating efforts to manage forex markets. (reuters.com)
In response to this policy shift, eight of the country’s largest banks, including KB Kookmin, Shinhan, Woori, and Nonghyup, have launched a joint initiative to issue a KRW-pegged stablecoin. This initiative aims to create a digitally native form of the Korean won pegged at 1:1, operating within a framework designed and controlled by the private sector rather than the central bank. (theedgemalaysia.com)
Market Implications
The shift toward stablecoins has had a significant impact on South Korea’s financial markets. The stock market has emerged as the best-performing in Asia in the first half of 2025, spurred by investor enthusiasm over the government’s support for crypto assets, particularly stablecoins backed by the Korean won. The Kospi Composite Index has soared nearly 30% this year, driven by hopes for shareholder-friendly policies and digital asset reforms. (ft.com)
Retail investors have significantly increased their leverage to capitalize on the rally, with margin loans reaching ₩20.5 trillion ($15 billion). However, experts caution that some stock valuations may be inflated, and the government has yet to clarify its crypto regulatory framework. The BOK remains wary of non-bank stablecoin issuers, concerned about their impact on monetary policy and capital flow, but is preparing further digital currency pilot tests in collaboration with commercial banks. (ft.com)
Conclusion
South Korea’s decision to halt its CBDC project in favor of developing a regulatory framework for won-backed stablecoins marks a significant shift in the country’s approach to digital currencies. While the move aligns with the new administration’s agenda to modernize the financial system, it also raises questions about the future of digital currency initiatives and the potential impact on monetary policy and financial stability. As the country navigates this evolving landscape, careful consideration and regulation will be essential to ensure the stability and security of the financial system.