South Korea Pauses CBDC Pilot, Banks Push Stablecoins

South Korea's central bank has unexpectedly paused its retail central bank digital currency (CBDC) pilot program, known as the "Hangang Project," which had been testing digital won payments among 100,000 citizens and seven major banks with local merchants. This decision comes just three months into the pilot and follows increasing pressure from the financial sector and the newly elected President Lee Jae-myung, who has prioritized the legalization of stablecoins.

Banks have expressed concerns about the high costs associated with the CBDC pilot, with each bank investing up to $4.4 million in infrastructure and marketing, and the lack of a clear commercialization plan. A senior banking official highlighted the cost and uncertainty, stating that "The second experiment of Han River Project is on the verge of collapse."

In response to the CBDC initiative's stumble, South Korea's top lenders are swiftly moving to introduce their own Korean won-pegged stablecoins. KB Kookmin Bank, the country's largest bank, has already submitted multiple stablecoin-related trademark applications. Shinhan Bank and other institutions are collaborating on a joint venture to issue regulated tokens. These banks are leveraging their extensive branch networks and customer bases to position stablecoins as the next phase of digital payments, emphasizing lower fees, faster settlement, and greater traceability.

The shift towards stablecoins is driven by regulatory and political support. President Lee's administration is backing a Digital Asset Basic Act that would create a licensing framework for stablecoin issuers with as little as ₩500 million ($370,000) of equity capital. Legislators argue that local stablecoins are essential to preserve monetary sovereignty and reduce reliance on U.S. dollar-pegged tokens that dominate the Korean crypto markets.

The Bank of Korea's (BOK) action raises questions about the coexistence of CBDCs, stablecoins, and bank deposit tokens within a single financial system. Banks have requested regulatory guidance and a clear path to commercialization before investing further in CBDC infrastructure. The central bank has now shifted its focus to monitoring stablecoin legislation and restructuring its internal units.

The push for stablecoins comes with risks. Legislators and regulators are seeking to balance innovation with financial safety, consumer protection, and anti-money laundering measures. The new licensing framework will require strong reserve management and user protections, but it remains uncertain how these tokens will integrate with legacy payment systems and cross-border flows.

South Korea's decision to pause its CBDC pilot and focus on establishing stablecoins is a significant policy shift in digital currencies. As regulators and banks race to define the future of money, the world is watching to see if stablecoins will overtake CBDCs in the next era of global finance. The BOK will reconsider its CBDC plans in 2026, but for now, the trend favors the banks and their KRW-pegged tokens. With the Digital Asset Basic Act moving forward and stablecoin pilots launching, South Korea could provide a template for how top economies navigate the contentious juncture of monetary policy, technology, and private innovation.