South Korea Halts CBDC Tests as Banks Eye Stablecoins

South Korea's central bank has reportedly halted its central bank digital currency (CBDC) testing, signaling a potential shift in the nation's digital currency strategy. This pause comes as the government increasingly supports local currency stablecoins, and participating banks express concerns over the CBDC project's cost and lack of commercialization plans.

South Korea Pivots from CBDC to Stablecoins

The Bank of Korea (BOK) has temporarily suspended the second round of its CBDC tests, originally slated for later this year. This decision follows growing government support for stablecoins, particularly those pegged to the Korean won. The BOK is reportedly awaiting clarity on the government's stablecoin initiatives to determine how a CBDC would integrate with such tokens.

Banking Sector's Discontent and Stablecoin Ambitions

Participating banks in the CBDC trials voiced significant dissatisfaction with the project's high costs and the absence of a clear commercialization strategy from the BOK. Some banking officials indicated that the second phase of the trials was already on the verge of collapse due to these concerns. Instead, banks are reportedly keen on issuing their own stablecoins, perceiving a more direct path to financial benefits.

• Key Takeaways:

  • The Bank of Korea has paused its CBDC testing.

  • The government is increasingly supportive of local currency stablecoins.

  • Participating banks found the CBDC trials too expensive and lacked a commercialization plan.

  • Banks are now focusing on issuing their own stablecoins.
    
    

Political Influence and Market Reactions

Newly elected President Lee Jae-myung's campaign promises, including allowing stablecoin issuance, appear to be influencing the shift. His party recently proposed legislation to permit companies to issue stablecoins with a minimum equity capital of 500 million Korean won ($370,000).

The news of the CBDC suspension and banks' pivot towards stablecoins has had a mixed impact on South Korean fintech stocks:

• Decline:

  • KakaoPay Corp (mobile payment app): Down 7%

  • Hecto Financial (payments firm): Down approximately 5%

• Increase:

  • KB Financial Group: Up 0.8%

  • Shinhan: Up 1.6%

Notably, half of the banks involved in the first stage of CBDC trials—KB Kookmin, Shinhan, Woori, and NongHyup—are now collaborating to launch a won-backed stablecoin by next year, further underscoring the industry's evolving focus.

Sources

• South Korea CBDC Trials On Hold As Banks Eye Stablecoins, Cointelegraph.

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