Bank of Korea pauses CBDC project as local stablecoin adoption picks up speed: report

South Korea’s central bank has decided to temporarily pause its CBDC project as local currency-based stablecoins gain momentum under endorsement by the country’s president.

According to Yonhap News Agency, the Bank of Korea (BOK) recently notified banks participating in the Hangang CBDC project that it is postponing discussions of a second stage of digital currency trials.

The suspension comes less than three months after the central bank launched the Hangang CBDC pilot, which allowed 100,000 citizen participants to use the CBDC at local vendors in partnership with major local banking institutions. The first stage of the pilot is expected to conclude this month.

The BOK told banks that it will monitor how the legislation around stablecoin goes, as it is unclear how CBDCs, stablecoins and bank deposit tokens would coexist, Yonhap reported citing an anonymous banking executive.

Participating in the CBDC pilot imposed a significant financial burden on local banks, the report added, especially with no concrete plan for implementation. On average, the seven participating banks each spent 5 billion Korean won ($3.7 million) on the CBDC pilot project.

The shift in focus from CBDC to stablecoins comes as South Korea’s recently elected President Lee Jae Myung vowed to approve the currently banned issuance of Korean won-pegged stablecoins and promote a local stablecoin market, with a goal of preventing capital flight.

Following the election, ruling party lawmaker Min Byeong-deok, Lee’s head of digital assets during the campaign, proposed legislation establishing a licensing regime and a set of requirements for prospective stablecoin issuers.

The stablecoin momentum accelerated as South Korea’s two largest IT companies — Kakao and Naver — filed stablecoin trademark applications via its mobile payment service platforms. According to local reports, eight leading banks of the country, including ones that participated in the CBDC pilot, are planning to launch a joint venture to issue a Korean won-based stablecoin.

Meanwhile, BOK itself expressed positive views toward Korean won-based stablecoins, with its governor Lee Chang-yong said he sees a need for such assets, provided appropriate measures are in place to manage the risks.

South Korea’s stablecoin boom mirrors that of the U.S., where the GENIUS Act is fast progressing to lay a legal foundation for USD stablecoins, under President Donald Trump’s push.

The East Asian country is home to one of the world’s largest spot crypto trading markets. More than one-in-five South Koreans own and trade crypto as of the end of 2024, according to government data.