Bank of Korea kicks off real-world testing of its CBDC with nine banks

The Bank of Korea and nine commercial lenders began phase two of a digital won pilot, testing bank-issued deposit tokens 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 program’s original seven. The institutions will now begin large-scale testing of the won-pegged deposit tokens built on a wholesale central bank digital currency (CBDC) layer, several local news outlets reported.

“Participating banks are actively securing diverse use cases, such as large businesses and small merchants with high public relevance and significant payment fee burdens, focusing on the potential for drastically reduced fees when using digital currency for payments,” said Kim Dong-sub, who heads the Bank of Korea’s digital currency planning team, according news outlet Chosun,

A key goal is to reduce the cost of transactions. By utilizing the deposit tokens, the BOK hopes to offer a lower-cost payment alternative for both large companies and small businesses that are currently burdened by credit card processing fees, according to the bank.

The Phase 2 start comes as South Korea’s Digital Asset Basic Act (DABA), a sweeping framework meant to govern crypto trading and issuance in one of Asia’s most active digital asset markets, is delayed because of disagreements among regulators over stablecoin issuance. The thorniest issue centeres on who should have the legal authority to issue KRW-pegged stablecoins.

In the new tests, peer-to-peer transfers, which were challenging in Phase 1, will become possible.

Kim also said “the government aims to begin disbursing subsidies in digital currency during the first half of this year,” with electric vehicle charging infrastructure subsidies expected to be among the first use cases.

The Bank of Korea also mentioned plans to enable digital currency as a payment method for ‘AI agents’, which are artificial intelligence systems that search for and purchase goods and services.