South Korea Halts CBDC Pilot, Shifts Focus to Stablecoins

The Bank of Korea (BOK) has announced a temporary halt to its central bank digital currency (CBDC) pilot program, suspending ongoing discussions with local banks. This decision comes as the government reassesses its strategy for navigating the digital currency landscape, which the BOK has been exploring in collaboration with private entities such as Kakao.

The central bank has put on hold preparations for the second phase of its digital currency testing initiative, originally scheduled to commence in the fourth quarter of this year. This pause is part of a broader shift in South Korea's financial policy, with the newly elected president, Lee Jae Myung, focusing on stablecoins as a key component of national financial strategy.

President Lee, who took office recently, is advocating for increased corporate involvement in stablecoin issuance. The ruling party has proposed legislation that would allow companies with as little as 500 million won in equity to issue stablecoins pegged to the won. This move aims to democratize the stablecoin market and encourage broader participation from various sectors.

Senior Deputy Governor Ryoo Sangdai of the BOK has emphasized the need for a gradual and supervised introduction of stablecoins. He stressed that any stablecoin implementation should be overseen by registered institutions, with measures in place to safeguard customers and prevent market disruptions. This cautious approach reflects the BOK's commitment to ensuring the stability and security of the financial system.

South Korea is a significant hub for cryptocurrency activity, with over a third of its population actively engaged in digital asset exchanges. The country's local cryptocurrency exchanges often see higher trading volumes compared to the Kospi and Kosdaq, the nation’s primary stock indexes. This high level of engagement underscores the importance of stablecoins in the country's financial ecosystem.

In a recent development, KB Kookmin Bank, the largest bank in South Korea, has submitted 17 trademark applications related to stablecoins. This move is part of an effort to establish a national stablecoin consortium supported by the country's top financial institutions. The consortium aims to create a unified framework for stablecoin issuance and regulation, further solidifying South Korea's position as a leader in digital currency innovation.