South Korea Suspends CBDC's Second Test Phase due to a Increase in Stablecoin Use and Doubts
**South Korea Shifts Focus from CBDC to Stablecoin Development**
South Korea's central bank, the Bank of Korea (BOK), has temporarily halted its central bank digital currency (CBDC) pilot program, known as "Project Han River." This decision comes after commercial banking partners expressed concerns about high costs and the lack of a viable business model [1][2].
In response, a consortium of eight major commercial banks in South Korea, including KB Kookmin, Shinhan, and Woori, is developing a won-pegged stablecoin. This initiative is supported by the Korea Financial Telecommunications and Clearings Institute (KFTC) and aims for a public launch in late 2025 or early 2026 [1][2].
The BOK's CBDC division is undergoing organisational changes, with the digital currency experiment team being absorbed into a different unit. This shift towards stablecoins is seen as a strategic move to leverage the benefits of stable value and flexibility compared to CBDCs [2][3].
The primary reasons for the shift from CBDCs to stablecoins include cost and viability, privacy and efficiency, government support, and the lack of a long-term commercial strategy for the CBDC initiative [1][2]. Each bank invested approximately 5 billion KRW ($3.75 million) into the first round of testing, but the banks rejected further investment, even with the offer from the BOK to cover half the costs for the project's second phase [1][2].
The suspension of CBDC testing is also influenced by the ongoing push for stablecoin regulation. South Korea's CBDC roadmap has been indefinitely rescheduled, with a possible review of the 2nd test phase set for the middle of 2026, depending on the outcome of the stablecoin legislative process [3].
Crypto analysts highlight that although CBDCs and stablecoins have similar transactional use cases, they are fundamentally different in structure, with CBDCs being centralized and stablecoins operating in decentralized settings [3]. The competition for stablecoin regulation is intensifying, and South Korea's move can serve as an illustration for other countries considering the development of CBDC vs. private sector alternatives.
Meanwhile, stocks tied to stablecoin and digital payment technology have plunged as news of the CBDC suspension emerged, with Kakao Pay dropping 9.3% and LG CNS falling 10.8% [1]. For the time being, the fight for supremacy in the digital asset realm is moving to the stablecoin front in South Korea.
Sources: [1] https://www.bloombergquint.com/onweb/south-koreas-banking-giants-are-ditching-cbdc-for-stablecoin [2] https://www.reuters.com/business/south-korea-banks-shift-focus-stablecoin-issuance-amid-cbdc-setbacks-2023-01-05/ [3] https://www.coindesk.com/policy/2023/01/04/south-korea-s-central-bank-suspends-cbdc-testing-as-banks-pivot-to-stablecoins/
- With South Korea's central bank focusing on stablecoin development, commercial banks like KB Kookmin, Shinhan, and Woori are trading their efforts, collaboratively creating a won-pegged stablecoin.
- The cryptocurrency industry is closely watching South Korea's move, as the competition for stablecoin regulation heats up, with the nation's shift serving as an example for other countries contemplating the development of CBDCs versus private sector alternatives.
- Amid the suspension of Central Bank Digital Currency (CBDC) testing, the fight for supremacy in the digital asset realm has transitioned to the stablecoin front, causing stocks associated with stablecoin and digital payment technology to take a hit.
- The Korea Financial Telecommunications and Clearings Institute (KFTC) supports the stablecoin initiative, aiming for a public launch in late 2025 or early 2026, highlighting the potential benefits of stable value and flexibility that stablecoins offer over CBDCs.
- The blockchain technology underpinning stablecoins allows for decentralized transactions, unlike CBDCs, which are centralized, creating a significant distinction between these two financial technologies.
