South Korea Pauses CBDC Pilot to Promote Won-Backed Stablecoins

South Korea’s central bank has decided to pause its Central Bank Digital Currency (CBDC) pilot program, shifting its focus towards the regulation and promotion of won-backed stablecoins. This strategic pivot comes as the government seeks to leverage the benefits of stablecoins in the digital economy, addressing operational and scalability challenges that have hindered the CBDC initiative.

The move towards stablecoins follows a pledge by President Lee Jae Myung to legalize the issue of Korean won-backed stablecoins and boost the stablecoin market. The long-term goal is to prevent capital from moving into foreign stablecoins. Shortly after the election, Min Byeong-deok, a lawmaker from the ruling party who oversaw digital assets in Lee’s campaign, put forward a bill to create a licensing system and rules for stablecoin issuers. The push gained steam when Naver and Kakao, two major IT companies, filed trademark applications for stablecoins linked to their mobile payment services. Local media say eight top banks, including those in the CBDC pilot, plan to form a joint venture to issue a won-based stablecoin.

The Bank of Korea itself has spoken positively about won-linked stablecoins. Governor Lee Chang-yong says that he anticipates a growing demand for such assets, as long as the right safeguards exist for any risks. The Digital Asset Basic Act, a key piece of legislation, aims to establish a comprehensive licensing framework for KRW-backed stablecoin issuers. This framework emphasizes consumer protection and stringent reserve requirements, ensuring that companies issuing stablecoins have at least ₩500 million in equity.

President Lee Jae-myung has made the promotion of locally regulated stablecoins a central financial policy, viewing them as a means to reduce dependence on foreign digital currencies and preserve monetary sovereignty in an increasingly digital economy. The shift towards stablecoins is not just a regulatory decision but also a market-driven one. Eight major commercial banks, including KB Kookmin, Shinhan, Woori, and Nonghyup, have announced plans to launch a KRW-pegged stablecoin. This collaborative effort is in response to regulatory expectations and growing market demand, positioning South Korea to potentially lead in fiat-backed stablecoin adoption.

The decision to prioritize stablecoins over CBDC reflects a broader trend in South Korea's financial strategy. By moving from centralized digital currency experiments to more market-integrated, bank-driven solutions, the country is embracing flexibility and innovation. This approach empowers domestic institutions while maintaining control over digital money flows, potentially connecting traditional banking with programmable money.

The regulatory framework for stablecoins is designed to ensure that the issuance of KRW-backed stablecoins is transparent and secure. The Digital Asset Basic Act will play a crucial role in this regard, providing a clear path for companies to issue stablecoins while protecting consumers and maintaining the stability of the financial system. The government's focus on stablecoins is also driven by concerns over the dominance of foreign-issued stablecoins, which are seen as a risk to financial autonomy.

The shift towards stablecoins is not just about regulatory compliance but also about economic growth. The stablecoin industry has the potential to rival the economic size of sectors like semiconductors and AI, according to Min Byeong-deok, head of the Digital Asset Committee. This highlights the government's commitment to fostering a tokenized economy that can compete on a global scale.