According to an article from Choi Ari and Lee Jae-eun at Cushon Daily, the Bank of Korea (BOK) has announced the launch of Project Hangang, a three-month pilot program to test the use of a central bank digital currency (CBDC) in real-world transactions. Scheduled to run from April to June, the initiative will allow 100,000 participants to convert their bank deposits into digital tokens for everyday payments. Unlike cryptocurrencies that operate on decentralized networks, CBDCs are issued and regulated by central banks. The pilot aims to assess the feasibility and functionality of a state-backed digital currency in South Korea’s financial ecosystem.
How Will the Pilot Impact Users?
Participants will make transactions using QR code payments, mirroring existing mobile payment methods. However, instead of drawing from a traditional bank balance, payments will be processed through deposit tokens, a digital representation of money backed by the BOK. Users will convert funds from their bank accounts into deposit tokens, similar to how debit card transactions directly deduct funds. For most participants, the process will feel familiar, much like using Kakao Pay or online credit card transactions.
Why is the BOK Testing a CBDC?
As physical cash usage declines and digital payments become the standard, central banks worldwide are exploring ways to modernize currency. Countries like China and several European nations have already advanced their CBDC initiatives. The BOK’s research began in August 2021, and since April 2024, the bank has also been involved in Project Agora, a global initiative led by the Bank for International Settlements (BIS). This project, in collaboration with the Institute of International Finance and seven central banks—including those of France, Japan, Korea, Mexico, Switzerland, the UK, and the US—focuses on tokenization and its potential to enhance wholesale cross-border payments.
Are There Spending Limits?
Yes. Each participant will have a deposit token limit of 1 million won ($689), with a total spending cap of 5 million won. Users can convert their bank deposits into digital tokens multiple times within these limits. Employees at participating banks have already been testing the system, and the BOK has hinted at the possibility of lifting restrictions if the trial proves successful. The first phase runs from April to June, followed by a second trial from October to December this year.
Who is Participating?
The pilot includes seven major banks:
- KB Kookmin Bank
- Shinhan Bank
- Hana Bank
- Woori Bank
- NH Nonghyup Bank
- IBK (Industrial Bank of Korea)
- BNK Busan Bank
Participants must have accounts with these banks. A mix of online and brick-and-mortar retailers will also support deposit token payments, including Hyundai Home Shopping, Ddangyo, Modhaus, 7-Eleven, Hanaro Mart, Kyobo Bookstore, and Ediya Coffee.
What’s Next for CBDCs in South Korea?
Beyond consumer payments, the BOK is exploring how CBDCs could facilitate voucher-based payments for government subsidies. One of the key advantages of a CBDC is its programmability, which enables conditional transactions. For example, government funds such as childcare subsidies could be distributed as deposit vouchers, ensuring they are spent only at authorized vendors. The BOK is working with local governments in Seoul and Busan to test such applications.
With Project Hangang, South Korea takes another step toward a digital financial future, potentially setting a precedent for CBDC adoption worldwide.
