The Bank of Korea completed the first practical test for Central Bank Digital Currency (CBDC) in June, and as discussions on won-based stablecoins gained momentum, subsequent test discussions have effectively stalled. The Bank intends to proceed cautiously with the CBDC project while monitoring the policy direction for stablecoins. Accordingly, the schedule for the second test, which was expected to be conducted within this year, has also been postponed indefinitely.
◇ Suspension of the second and third tests… hindrance to person-to-person remittance and commercialization experiments
According to the financial sector on the 3rd, the Bank has not been able to announce a new schedule since it temporarily suspended discussions on the second test of 'Project Han River' at the end of June. A Bank official noted, "It is difficult to prepare for the second test immediately because the legislative direction regarding virtual assets is not clear."
CBDC is a form of legal currency issued electronically by a Central Bank. It is commonly referred to as a 'Central Bank version of stablecoin.' Depending on its use, it is divided into retail, which is used by individuals and corporations, and wholesale, which is used as reserve funds in transactions between financial institutions. The Bank of Korea is prioritizing the introduction of wholesale CBDC in line with a payment infrastructure centered around commercial banks.
In the first test, seven major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, IBK, Busan Bank) and 100,000 consumers participated to conduct experiments on issuing deposit tokens and payments backed by CBDC. Based on this, a second test including person-to-person remittance functions was planned for October, followed by a third test at the level of commercialization.
However, discussions on the introduction of stablecoins intensified after the launch of the Lee Jae-myung administration, weakening the momentum for the CBDC project. It is judged that the practical benefits of participating in the CBDC experiment are uncertain since the adoption of won-based stablecoins has not been decided. There were also opinions that it is not easy to prepare for things like building a fraud detection system (FDS) necessary for person-to-person remittance in the absence of related regulations.
In fact, Lee Chang-yong, the Governor of the Bank of Korea, met with the heads of major commercial banks to request participation in the project, but practical negotiations have not made progress. The Korea Banking Association stated in a report distributed last month, "We are cooperating with the ongoing first test, but follow-up tests are entirely different in nature and require new internal procedures," adding, "Consultation with the Bank is necessary."
◇ Monitoring the passage of stablecoin-related bills… 'once the system is established, CBDC will gain momentum'
The Bank plans to resume the second test in line with the pace of discussions on stablecoin legislation in the National Assembly. Four related bills have been proposed in the National Assembly, and discussions are progressing mainly around capital requirements.
In July, lawmakers Min Byeong-deok and Kang Joon-hyun (Democratic Party of Korea) proposed bills that set capital standards at 500 million to 1 billion won and above 1 billion won, respectively. On the 28th of last month, lawmakers Ahn Do-gul (Democratic Party of Korea) and Kim Eun-hye (People Power Party) submitted an additional bill that includes requirements for over 5 billion won. The industry believes these bills have a high likelihood of passing the National Assembly by the end of the year.
The 'Second Phase of Virtual Asset Law' legislation expected to be announced in the second half of the year by the Financial Services Commission is also an important variable for the CBDC project. This bill is expected to include comprehensive regulations covering not only trading and brokerage of virtual assets but also listing, disclosure, and investor protection. It will also include provisions regarding the reserves for stablecoin issuers and guarantees for user refunds. Once the system is overhauled, the CBDC project is expected to gain momentum.
However, time is not on the Bank's side. The CBDC real transaction experiment began within a regulatory sandbox after being designated as an innovative financial service by the Financial Services Commission in October last year. The designation is valid for two years from the beginning of the first test in April, meaning all tests must be completed by April 2027. Currently, with the second test suspended, there is limited time to complete the commercialization test.
A Bank official stated, "We do not expect that discussions regarding stablecoins will conclude in a way that blocks the issuance of deposit tokens," adding, "We plan to advance the CBDC project in line with the pace of legislation." He further noted, "Rather, if a legal basis is established, conditions may be created to advance the project more rapidly."