Central Bank Challenges Stablecoin Dominance in Korea's Testing Ground for Financial Superiority Clash
In a significant move, South Korea has temporarily halted its central bank digital currency (CBDC) project, known as "Project Hangang," due to high costs and lack of profitability concerns raised by commercial banks involved. Instead, the country is now focusing its efforts on private, bank-led stablecoin initiatives.
Project Hangang Paused After First Phase
Launched earlier in 2025, Project Hangang was a two-tier CBDC pilot that included wholesale CBDC for interbank settlements and tokenized retail deposits. After spending approximately 35 billion won (~$26 million) during the first phase, commercial banks expressed reluctance to continue without a clear business model.
Despite the Bank of Korea (BOK) offering to subsidize half the costs for the next phase, the banks rejected this proposal, signalling concerns beyond funding.
Bank-Led Stablecoin Consortium Emerge
Following the pause in Project Hangang, eight major commercial banks formed a consortium to develop a private stablecoin pegged to the Korean won. This initiative is supported by the Korea Financial Telecommunications and Clearings Institute (KFTC) and seeks a public launch within months.
BOK's Cautious Approach to Stablecoins
The BOK is cautious about stablecoins but favours initial issuance by highly regulated banks rather than non-bank entities to maintain financial stability. Politically, there is movement towards regulated stablecoins to support monetary sovereignty and prevent capital flight, with President Lee Jae Myung backing regulated KRW-based stablecoins and legislation underway to that effect.
The Future of Digital Currency in South Korea
In summary, South Korea’s current digital currency competition sees private stablecoins, led by major banks, advancing actively while the CBDC project remains suspended. This strategic shift is shaped by commercial viability, regulatory caution, and evolving government policy.
The country is also working on stablecoin legislation, with the BOK aiming for a central role in their supervision. The central bank's visits to the major banks and involvement in projects like Project Agora for cross-border payments suggest an urgency in the transition to digital currencies.
South Korea's approach of combining direct engagement, financial incentives, and strategic accommodation could serve as a playbook for central banks worldwide seeking to maintain their role in an evolving digital payments landscape.
- In light of high costs and lack of profitability concerns, the first phase of Project Hangang, a two-tier CBDC pilot, has been temporarily halted due to commercial banks' reluctance to continue investing.
- Instead of Project Hangang, eight major commercial banks in South Korea have formed a consortium to develop a private stablecoin pegged to the Korean won, supported by the Korea Financial Telecommunications and Clearings Institute (KFTC), and are planning for a public launch soon.
- The Bank of Korea (BOK) is cautious about stablecoins but favors their initial issuance by highly regulated banks to maintain financial stability and prevent capital flight.
- With President Lee Jae Myung backing regulated KRW-based stablecoins and legislation underway, South Korea is actively working on stablecoin legislation, with the BOK aiming for a central role in their supervision.
- South Korea's approach to digital currencies combines direct engagement, financial incentives, and strategic accommodation, which could serve as a playbook for central banks worldwide seeking to maintain their role in an evolving digital payments landscape.
