The Bank of Korea and nine commercial lenders have begun the second phase of a digital won pilot project, testing deposit tokens issued by banks and backed by central bank infrastructure to determine whether the system can support government subsidy payments and consume transfers and payments nationwide.
The second phase of Project Hangang adds two banks, Kyongnam Bank and iM Bank, to the initial seven banks in the program. Institutions will now begin large-scale testing of won-pegged deposit tokens built on a central bank digital currency (CBDC) layer, several local media outlets reported.
“Participating banks are actively securing various use cases, such as large enterprises and small merchants with high public significance and large payment fee burdens, focusing on the potential for drastic fee reduction when using digital currency for payments,” said Kim Dong-sub, who leads the Bank of Korea’s digital currency planning team, according to media outlet Chosun,
A key objective is to reduce the cost of transactions. By using deposit tokens, BOK hopes to offer a cheaper payment alternative to large and small businesses that are currently burdened by credit card processing fees, according to the bank.
The start of Phase 2 comes as South Korea’s Digital Assets Act (DABA), a comprehensive framework intended to govern the trading and issuance of cryptocurrencies in one of Asia’s most active digital asset markets, is delayed due to disagreements among regulators over the issuance of stablecoins. The thorniest question is who should have the legal authority to issue KRW-pegged stablecoins.
In the new tests, peer-to-peer transfers, which were difficult in phase 1, will become possible.
Kim also said that “the government plans to start disbursing digital currency subsidies in the first half of this year,” with subsidies for electric vehicle charging infrastructure expected to be among the first use cases.
The Bank of Korea also mentioned plans to use digital currency as a payment method for “AI agents,” which are artificial intelligence systems that search for and purchase goods and services.
