The Bank of Korea will launch a pilot program to test its central bank digital currency (CBDC) in real-world transactions from April to June, the central bank said on March 18. The pilot, named Project Hangang, will involve 100,000 participants who can convert their bank deposits into digital tokens. CBDC is a digital currency issued and regulated by a central bank, unlike virtual currencies that operate on decentralized networks. The three-month trial aims to evaluate the feasibility of a digital currency backed by the central bank.
Q1. What will change for users?
Participants in the pilot will make payments by scanning a QR code, similar to existing mobile payment platforms. But instead of drawing from a traditional bank balance, payments will be processed through deposit tokens—a digital currency based on CBDC issued by the BOK. Deposit tokens are converted from cash in a user’s bank account, similar to a debit card deducting funds directly from the account. For most participants, the experience will closely resemble existing mobile payment services like Kakao Pay or online card transactions.
Q2. Why is the BOK conducting CBDC trials?
As the use of physical cash—banknotes and coins—continues to decline and digital transactions become the norm, central banks around the world are exploring ways to modernize fiat currency. China and several European countries are advancing CBDC initiatives, while the BOK began CBDC research in August 2021. Since April last year, the BOK has also been involved in Project Agora, a project led by the Bank for International Settlements to explore how tokenization can enhance wholesale cross-border payments. The project is a public-private collaboration involving the Institute of International Finance and seven central banks, including the Bank of France, Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England and the Federal Reserve Bank of New York.
Q3. Are there spending limits?
Individual participants 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 deposit tokens multiple times within this limit. Employees at participating banks have been testing the system ahead of the broader rollout, and the BOK has indicated that restrictions could be lifted if the pilot proves successful. The first trial will run for three months, from early April to June 30, and a second round of testing is planned for the fourth quarter of this year, from October to December.
Q4. Which institutions are participating?
Seven banks, including KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, IBK, and BNK Busan, are taking part in Project Hangang. Participants must have an account with one of these banks. The pilot will also involve a mix of online and brick-and-mortar retailers that will accept payments in deposit tokens, such as Hyundai Home Shopping, Ddangyo, Modhaus, 7-Eleven, Hanaro Mart, Kyobo Bookstore and Ediya.
Q5. What’s next for CBDCs in South Korea?
The BOK is exploring additional applications using CBDCs, including voucher-based payments tied to government subsidies. One of the key advantages of a central bank-issued digital currency is its programmability, which allows for the setting of specific conditions on payments. For instance, government subsidies such as childcare support could be distributed as deposit vouchers with transaction limits to approved vendors, ensuring that funds are used for their intended purpose. The BOK is working with local governments, including Seoul and Busan, to test these applications.
