Key Insights:
- The Bank of Korea has paused its CBDC trials due to commercial banks favoring stablecoins.
- South Korea’s President Lee Jae-myung’s pro-crypto stance has encouraged banks to pivot towards won-backed stablecoins instead of CBDCs.
- The Bank of Korea seems to be observing the private sector’s stablecoin initiatives before deciding how to proceed.
South Korea has just hit a crossroads in its digital asset journey. The Bank of Korea (BoK) has been forced to temporarily pause its central bank digital currency (CBDC) trials.
Reportedly, this move comes amid a growing appetite for stablecoins and their advantages among local banks. This decision is more than just a delay in testing. Now with banks pivoting toward stablecoins, does the BoK’s CBDC move program have any chance of returning?.
South Korea Government Signals Spur Shift in Focus
The turning point for the CBDC pause came shortly after newly elected President Lee Jae-myung took office.
President Lee has always been a vocal supporter of digital finance and even campaigned with several crypto and stablecoin-related promises. His administration recently proposed a bill that would allow private companies to issue stablecoins pegged to the Korean won, as long as they hold a minimum equity capital of 500 million KRW (about $370,000).
That kind of regulatory clarity turned heads, especially among the country’s major financial institutions. As a result, banks that were once invested in the central bank’s CBDC trials are going solo with stablecoins.
Banks Cool on CBDC Testing
The BoK launched its CBDC trials in April of this year, and even enlisted seven major banks as it attempted to experiment with a digital version of the Korean won.
The first phase of the trial included 100,000 users who tested the new CBDC between April 1 and June 30. However, as the second phase of testing approached, banks started to push back.
According to local media reports, the banks were frustrated with how expensive the trial was turning out to be. This is along with the lack of a clear plan from the central bank. Without a roadmap for how the digital won would be implemented, these banks started to question the value of being involved any further.
Stablecoins Offer a Clearer Business Case
While the CBDC project has now been paused, stablecoins are the exact opposite.
Eight South Korean banks, including KB Kookmin, Shinhan, Woori, and NongHyup, are reportedly teaming up to launch a won-backed stablecoin by 2026.
Stablecoins, as it turns out, present a clearer business opportunity for these banks. This class of digital assets can be issued, branded and monetized by the banks themselves.
They are a lot unlike CBDCs, which are controlled and issued by central banks, in that they have strong promises of profit for private players.
Moreover, stablecoins allow banks to build their own business-to-consumer relationships. It even allows them to directly benefit from things like transaction volumes, user adoption and mainstream integration with small businesses.
The South Korea Market Reacts
The news of the CBDC suspension has so far been welcomed in and out of South Korea despite the mixed response from fintech stocks.
So far, it is important to clarify that the BoK has not completely abandoned the CBDC plan.
Instead, it is planning to reschedule the second phase of the trials to early 2026 and possibly reduce the number of participating banks. Besides, it is clear that the central bank sees long-term value in developing a digital won.
However, for now, it appears the bank seems to be waiting to see how the private sector handles its stablecoins before deciding how to proceed.
Overall, by focusing on stablecoins for now, South Korea’s banks are setting themselves to meet market demand. This move will also be a great opportunity to experiment with digital assets and build powerful platforms that could later work hand in hand with a digital won CBDC.
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