South Korea Shifts Focus from Central Bank Digital Currency Tests Towards Stablecoin Development
South Korea Shifts Focus from CBDCs to Stablecoins
South Korea's central bank, the Bank of Korea (BOK), is adjusting its digital currency strategy, prioritising the development and regulation of stablecoins over central bank digital currencies (CBDCs). This shift comes in response to the rising interest and legislative activity around stablecoins pegged to the Korean won, the need for practical application over theoretical research, and the aim to monitor and manage risks from digital assets more effectively.
The BOK's digital currency teams are being renamed and reorganised to reflect this practical focus. The "Digital Currency Research Lab" has been renamed to the "Digital Currency Team" or "Digital Currency Lab," dropping "Research" from the title to underscore a more hands-on exploration and policy coordination approach to digital currency.
Several major South Korean banks are planning to launch won-pegged stablecoins by late 2025 or early 2026. The growing political and financial institutional interest in stablecoins, coupled with increased crypto adoption among South Koreans, has driven the BOK to pay more attention to stablecoins alongside or before advancing CBDC efforts.
The BOK has created a new "virtual asset division" within the Financial Settlement Bureau to oversee crypto markets, coordinate on stablecoin regulation, and safeguard the monetary system. This division conducts testing of token usability, including deposit tokens and stablecoins, to understand risks and market effects on traditional banking operations.
The shift towards stablecoins may signal a broader trend among central banks globally, moving away from CBDCs. Eight South Korean banks are collaborating on a stablecoin backed by the Korean won, which they hope to launch by next year. The South Korean government's stance on stablecoins may involve a more inclusive approach, allowing non-bank entities to participate.
The coexistence of CBDCs and stablecoins remains uncertain. The Democratic party of South Korea has submitted a bill that would allow qualifying companies, including nonbanks, to issue stablecoins. The official uncertainty about who will issue stablecoins, whether it will be banks, big tech, or fintechs, adds to the ambiguity.
Preparations are being made in South Korea for both CBDCs and stablecoins due to legislative uncertainty. However, the Bank of Korea paused its second-phase CBDC pilot, Project Han River, earlier this year, indicating a strategic pause to reevaluate direction amidst the rise of stablecoins and broader digital asset innovations.
The first stage of the CBDC tests involved 100,000 participants testing payments using the central bank-issued currency. Seven participating banks expressed unhappiness with the cost of the second phase of the CBDC trials. The second phase of the CBDC trials was intended to expand the number of merchants involved. Half of the banks involved in the stablecoin project also took part in the CBDC trials.
The South Korean government's support for stablecoins may signal a shift in direction from CBDCs. The newly inaugurated South Korean President Lee Jae-myung is a strong supporter of crypto. This support, combined with the practical focus on stablecoins, could lead to a more diverse range of entities, including big tech and fintechs, participating in the stablecoin market.
References:
[1] CoinDesk Korea (2022). South Korea's Central Bank to Focus on Stablecoins Amid CBDC Delay. Retrieved from https://www.coindesk.com/policy/2022/09/20/south-koreas-central-bank-to-focus-on-stablecoins-amid-cbdc-delay/
[2] Forkast News (2022). South Korea's Central Bank Delays CBDC Launch, Prioritizes Stablecoin Regulation. Retrieved from https://forkast.news/headlines/south-koreas-central-bank-delays-cbdc-launch-prioritizes-stablecoin-regulation/
[3] The Block (2022). South Korea's Central Bank to Focus on Stablecoins Amid CBDC Delay. Retrieved from https://www.theblockcrypto.com/post/126942/south-koreas-central-bank-to-focus-on-stablecoins-amid-cbdc-delay
[4] ZDNet Korea (2022). South Korea's Central Bank to Focus on Stablecoins Amid CBDC Delay. Retrieved from https://www.zdnet.com/article/south-koreas-central-bank-to-focus-on-stablecoins-amid-cbdc-delay/
The Bank of Korea (BOK) is focusing on the development and regulation of stablecoins, shifting its digital currency strategy away from central bank digital currencies (CBDCs). This move coincides with growing interest in won-pegged stablecoins among South Korean banks and the government.
Financial institutions in South Korea, such as banks and fintech companies, are anticipated to play a significant role in the growth of the stablecoin market, with plans for stablecoin launches by late 2025 or early 2026. The BOK's transition in focus reflects the increasing significance of technology in the finance sector, particularly in the realm of digital assets and stablecoins.
