In a surprising turn of events, South Korea has pivoted from its ambitious state-led Central Bank Digital Currency (CBDC) initiative to a dynamically privatized stablecoin project developed by a consortium of commercial banks. This shift marks a significant change in the nation’s financial landscape and reflects a broader regional trend as countries navigate the complex waters of digital currency regulations.
Halting of Bank of Korea’s CBDC Pilot Program
South Korea’s Bank of Korea (BOK) caused a stir by suspending its CBDC pilot program known as “Project Han River.” This initiative aimed to assess the viability of a two-tier digital currency system, combining a wholesale CBDC for interbank settlement and tokenized deposits for retail users. However, concerns over the financial load on participating banks, coupled with a lack of clear commercialization strategy, led to the project’s abrupt halt.
The seven participating banks collectively invested approximately 35 billion won in the initial three-month phase, which indicates a substantial commitment to the project’s success. Despite Governor Rhee Chang-yong’s offer to cover half the costs for the second phase, the banks refused to continue, highlighting rising tensions between the central bank and the commercial sector.
The Bank of Korea has suspended its central bank digital currency (CBDC) pilot program, ‘Project Han River,’ due to concerns over the financial burden on participating banks
The Block
Private Stablecoin Initiative by Commercial Banks
With the CBDC initiative sidelined, a consortium of eight major South Korean banks—including KB Kookmin, Shinhan, and Woori—has stepped up to spearhead a new stablecoin project. This won-pegged stablecoin aims to provide an alternative to existing U.S. dollar-based digital currencies, fostering innovation and enhancing competitiveness in the domestic financial landscape.
The initiative strives for a public launch by late 2025 or early 2026 and is being actively supported by the Korea Financial Telecommunications and Clearings Institute (KFTC). The consortium is currently deliberating between two potential models for stablecoin issuance: a trust-based model and a deposit-linked model.
Two issuance models under review — banks take the lead
CoinHubKorea
Regulatory Environment and Concerns
President Lee Jae-myung’s administration is expediting the “Digital Asset Basic Act,” aimed at providing a legal foundation for stablecoin issuance in South Korea. This move seeks to offer regulatory clarity while mitigating risks associated with volatile digital assets. The Financial Services Commission (FSC) will oversee regulations surrounding these digital currencies.
However, concerns remain about potential implications for monetary policy and systemic stability. The Bank of Korea has warned about risks including capital flight, with Governor Rhee cautioning about conversion between won-based and dollar-based stablecoins potentially disrupting foreign exchange controls.
The issuance of won-pegged stablecoins by non-bank entities could undermine monetary policy
BOK official
Commercial Banks’ Role and Market Developments
South Korean banks are actively preparing for the stablecoin market, with institutions like KB Kookmin and Shinhan taking lead roles. KB Kookmin has filed for trademarks for potential stablecoin branding, signaling its ambitions in this emerging sector. Meanwhile, increased transactions involving U.S. dollar-pegged stablecoins indicate growing market appetite for digital assets.
The competitive landscape extends beyond traditional banks, with companies like Kakao Pay announcing plans to issue a Korean won stablecoin. This diverse engagement could position South Korea as a key player in the global stablecoin market.
The reason for the existence of stablecoins lies in their practicality
Nexus CEO Jang Hyun-guk
Charting the Future: The Rise of Korean Stablecoins
The coming years will be critical as South Korea navigates its digital currency evolution. The shift from state-directed CBDC to private-led stablecoins reflects both local transformation and global fintech trends. With the Digital Asset Basic Act providing legal framework, significant stablecoin market growth is expected between late 2025 and mid-2026.
As stakeholders prepare to unlock stablecoin potential, South Korea’s proactive approach may set benchmarks for other nations. While the economic impact remains to be seen, one certainty emerges: South Korea’s financial future is evolving at remarkable speed.
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