Amid Stablecoin Push, Bank of Korea Temporarily Suspends Digital Currency Experiment

Uncertainty Remains Over Introduction and Scope of Korean Won Stablecoin
Review of Changes in Conditions Such as Stablecoin Legislation Comes First

The Bank of Korea has temporarily suspended the second phase of testing for its digital currency (wholesale CBDC) experiment, known as 'Project Hangang.' This decision comes as the banking sector has pushed back, arguing that further investment is difficult unless a long-term roadmap, including commercialization, is presented. The Bank of Korea has also shifted its stance, opting to first observe the legislative developments related to the introduction of a Korean won stablecoin, especially amid growing momentum for such initiatives.

The Bank of Korea had envisioned Project Hangang as a potential model for a bank-issued Korean won stablecoin, built on trust in the central bank. However, with the schedule for follow-up testing and commercialization now uncertain, it has become difficult to prepare for and implement measures ahead of the institutionalization of Korean won stablecoins. Banks are now expected to begin preparations for issuing their own individual stablecoins.

According to the financial sector on June 30, the Bank of Korea decided during a virtual meeting with banks that participated in the first phase of Project Hangang on June 26 to temporarily put discussions on the second phase of testing on hold. Given that the direction of banks' business strategies could vary depending on whether and to what extent Korean won stablecoins are permitted, the Bank of Korea appears to have decided to revisit the schedule for the second phase of testing after monitoring the progress of legislation and policy developments related to stablecoins.

Previously, the banking sector had emphasized that the next phase of digital currency testing would require additional IT development and budget execution, as the scope would expand to include peer-to-peer remittances and the discovery of additional merchants. Therefore, they stressed the need to establish a long-term roadmap that includes commercialization plans before proceeding with the second phase of testing. Bank of Korea Deputy Governor Yoo Sangdae also stated at a press briefing on June 24, "The government has not yet finalized a clear position on the introduction of a Korean won stablecoin, and there is significant uncertainty regarding relevant legislation. Since the second phase of testing would require considerable human and material investment, we plan to consult with banks and proceed with testing once the legal framework is in place."

Project Hangang is a digital currency experiment in which the Bank of Korea issues a wholesale CBDC and banks create and use deposit tokens. Since April, the Bank of Korea has conducted real transaction tests with about 80,000 members of the general public. The first phase of testing was scheduled to conclude at the end of this month, with the second phase originally planned for the fourth quarter of this year. The second phase aimed to upgrade the service by adding peer-to-peer remittances, expanding merchants, and simplifying authentication methods.

A Bank of Korea official stated, "We plan to resume testing after closely reviewing changes in institutional conditions, such as the clarification of laws related to stablecoins," adding, "Once a certain degree of uncertainty is resolved, we will discuss effective testing methods with participating institutions."