Why Did South Korea Suddenly Pause CBDC Development?
In a dramatic policy shift on July 1, 2025, the Bank of Korea (BOK) halted its three-month-old Central Bank Digital Currency (CBDC) pilot program. This decision came as seven participating commercial banks began withdrawing support, with one executive comparing continued CBDC investment to "driving in fog" amid regulatory uncertainty.
The pivot stems from President Lee Jae-myung's financial reform agenda, particularly a proposed policy allowing corporations to issue stablecoins with just ₩5 billion (≈$370,000) in reserves. Presidential advisors argue stablecoins bridge traditional finance and crypto markets 2-3 years faster than CBDCs.
Why Are Banks Switching Allegiance to Stablecoins?
Commercial banks participating in the CBDC pilot reported frustration over unclear profitability despite successful testing with 100,000 users. Stablecoins offer clearer advantages:
- Cross-border transaction fees
- Management of reserve assets
- Expanded financial service opportunities
Notably, several CBDC-participating banks joined KB Kookmin Bank's "Korean Won Stablecoin Alliance," targeting a Q4 2025 launch of a joint ₩1-pegged stablecoin.
What Do 18 Million Korean Investors Reveal?
Market data shows striking trends among Korean investors:
| Asset Class | Average Allocation |
|---|---|
| Cryptocurrencies | 14% |
| Stocks | 32% |
| Real Estate | 41% |
| Cash Equivalents | 13% |
With 50% of Koreans aged 20-59 having traded crypto, financial institutions face pressure to adapt. As one digital banking head noted: "We must secure our share in the stablecoin market or risk losing the next generation of clients."
Regulatory Divisions Emerge
BOK Deputy Governor Ryu Sang-deok recently warned of risks requiring "circuit breakers" for bank-issued stablecoins, highlighting two central concerns:
- Commercial bank over-issuance triggering runs
- Potential system conflicts between stablecoins and CBDCs
The central bank postponed Phase 2 CBDC testing to early 2026—coinciding with stablecoin alliance launch plans—as policymakers navigate these dual systems.
How Should Investors Respond?
Financial analysts recommend a dual-track strategy:
- Short-term: Capitalize on bank-issued stablecoin arbitrage
- Long-term: Maintain CBDC-related asset exposure
- Risk management: Limit crypto allocations
Hedge funds are already developing stablecoin-CBDC spread products, while experts caution retail investors about transitional market volatility.
FAQ Section
Is South Korea's CBDC Pilot Permanently Canceled?
The program is paused, not terminated, with potential restart in 2026 pending stablecoin policy clarity—though likely with reduced scope.
Can Any Business Really Issue Stablecoins?
While the proposal allows ₩5B-reserve issuers, monthly audits and technical/compliance barriers may exclude most SMEs.
Are Bank-Issued Stablecoins Safer?
Generally lower-risk but consider: 1) Varying bank solvency 2) Cross-border FX controls 3) Smart contract vulnerabilities.