The Bank of Korea and nine commercial lenders began phase two of a digitally won pilot project, 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 tied deposit tokens built on a wholesale central bank digital currency (CBDC) layer, several local news outlets reported.
“Participating banks are actively securing various use cases, such as large enterprises and small merchants with high public relevance and significant payment fees, 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 to Chosun news outlet.
A key goal is to reduce transaction costs. By using the deposit tokens, BOK hopes to offer a cheaper payment alternative for both large businesses and small businesses currently burdened by credit card processing fees, according to the bank.
The Phase 2 launch comes as South Korea’s Digital Asset Basic Act (DABA), a comprehensive framework meant to govern crypto trading and issuance in one of Asia’s most active markets for digital assets, has been delayed by disagreements among regulators over stablecoin issuance. The most difficult issue concerns who should have the legal authority to issue KRW-linked stablecoins.
In the new tests, peer-to-peer transfers, which were challenging in Phase 1, become possible.
Kim also said that “the government aims to start paying digital currency subsidies during the first half of this year,” with electric vehicle charging subsidies expected to be among the first 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 buy goods and services.
