After three months of testing, South Korea’s central bank has postponed further development of its central bank digital currency (CBDC), as both the government and local banks increase their support for stablecoins.
The Bank of Korea has suspended the second round of CBDC trials, originally scheduled for later this year. Meanwhile, eight South Korean banks are collaborating on a stablecoin backed by the Korean won, which they hope to launch by next year.
This shift may signal a broader trend among central banks globally, moving away from CBDCs in favor of stablecoins. A senior official at one of the participating banks told South Korea’s Yonhap News Agency that the coexistence of CBDCs and stablecoins remains uncertain.
Unhappiness with the First Tests
There are signs that the CBDC tests soured the banks on its potential. One senior banking official said that seven participating banks became unhappy with the cost of the second phase of the CBDC trials. Half of the banks involved in the stablecoin project also took part in the CBDC trials.
The first stage of the CBDC tests involved 100,000 participants testing payments using the central bank-issued currency, which ran from April 1 through June 30. During this period, up to 100,000 citizens ages 19 or older, and holding an account at a participating bank, could convert their deposits into the CBDC for use at stores like 7-Eleven. The second phase would have expanded the number of merchants involved.
Even when the program was introduced, some worried that CBDCs could grant governments too much insight into their citizens’ transaction histories. They instead advocated for stablecoins as a better solution, combining the stability of fiat currencies with the efficiency of cryptocurrencies.
A New Governmental Direction
Dissatisfaction with the CBDC testing isn’t the only reason for the shift in priorities. The newly inaugurated South Korean President Lee Jae-myung is a strong supporter of crypto. During his campaign, he promised to support a won-based stablecoin market. His Democratic party has already submitted a bill that would allow qualifying companies, including nonbanks, to issue stablecoins.
“We don’t know whether the issuing entity of stablecoins will be banks, big tech, or fintechs,” a Korean bank official told Yonhap. “We have no choice but to prepare for both situations before they become legislative.”
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