South Korea’s central bank recently made the decision to suspend its central bank digital currency (CBDC) pilot program, shifting its focus towards a private, bank-led stablecoin initiative. The Bank of Korea (BOK) halted its “Project Han River” due to mounting pressure from commercial banking partners who raised concerns about prohibitive costs and the lack of a viable business model.
The project, which was launched earlier this year, aimed to create a two-tier system involving a wholesale CBDC for interbank settlement and tokenized deposits for retail use by 100,000 citizens. However, the seven participating banks collectively spent nearly 35 billion won (about $26 million) on the initial three-month phase and were hesitant to proceed without a clear path to profitability. Even a last-minute offer from BOK Governor Rhee Chang-yong to cover half the costs for the project’s second phase was rejected, indicating that the banks’ concerns were more deep-rooted than just financial expenses.
In response to the void left by the state-led project, a consortium of eight major commercial banks, including KB Kookmin, Shinhan, and Woori, has come together to develop a won-pegged stablecoin. This initiative, supported by the Korea Financial Telecommunications and Clearings Institute (KFTC), is set to launch publicly in late 2025 or early 2026. The banks believe that issuing their own stablecoins will provide them with a significant commercial advantage, allowing them to leverage their existing customer base to generate new revenue streams and protect themselves from competition from fintech companies or a state-run currency.
This strategic shift was made possible by a change in government policy under President Lee Jae-myung, who campaigned on a pro-crypto platform and pledged to approve won-pegged stablecoins. President Lee’s administration is expediting the “Digital Asset Basic Act” legislation, which establishes a legal framework for stablecoins and grants regulatory authority to the Financial Services Commission (FSC) rather than the Bank of Korea. The act also sets a low capital requirement of ₩500 million (about $370,000) to encourage competition in the stablecoin market.
The private sector has been quick to capitalize on this opportunity, with KB Kookmin and Shinhan Bank taking proactive steps to secure their positions in the stablecoin space. While BOK Governor Rhee and other central bank officials have acknowledged the need for won-backed stablecoins, they remain cautious and express concerns about the potential risks associated with private stablecoin proliferation. They warn that an influx of stablecoins could disrupt monetary policy, create systemic risk, and lead to capital flight as users switch to dollar-pegged alternatives.
Despite these concerns, the volume of USD-pegged stablecoin transactions in Korea has been significant, reaching ₩56.95 trillion ($41.6 billion) in the first quarter of 2025. The central bank advocates for a gradual rollout of stablecoins, preferring that only highly regulated banks be permitted to issue stablecoins initially before expanding to non-bank entities. In the meantime, the BOK has positioned its suspended CBDC work as a potential “countermeasure to stablecoins,” a public option that could be revived if the private market becomes too volatile.