Bank of Korea places CBDC and tokenized deposit project on hold

The Bank of Korea’s decision to pause its wholesale central bank digital currency (CBDC) and tokenized deposit initiative, known as Project Han River, marks a pivotal moment in the evolution of South Korea’s digital finance landscape. This development follows the completion of a large-scale pilot involving 100,000 participants, and reflects a complex interplay of industry concerns, regulatory uncertainty, and shifting priorities within the digital asset ecosystem.

Project Han River was conceived as an ambitious experiment to test the integration of tokenized deposits and a wholesale CBDC, with the aim of modernizing interbank settlement and retail payments through blockchain-based infrastructure. The pilot, which began in April and ran for three months, allowed consumers to use tokenized deposits (blockchain representations of bank money) at a range of merchants, while banks settled transactions using a wholesale CBDC. The design was innovative, exploring models such as mint-and-burn token transfers and e-money style wrapping of CBDC, with the Korea Financial Telecommunications and Clearings Institute overseeing the smart contracts and the Ministry of Science and ICT and the Financial Services Commission supporting usability tests.

Despite the technical promise, the project encountered significant resistance from the seven participating banks, including KB Kookmin, Shinhan, Hana, Woori, NH NongHyup, and Industrial Bank of Korea. The banks collectively invested around 35 billion won (approximately $26 million) in the initial phase, but grew increasingly concerned about the high costs of participation and the absence of a clear path to commercialization. The burden of infrastructure development, merchant onboarding, and ongoing operational expenses fell heavily on the banks, who questioned the viability of continuing without a robust business model or tangible prospects for profitability. Even after the Bank of Korea offered to subsidize half the costs for the next phase, the banks remained unconvinced, indicating that their concerns extended beyond financial outlay to the fundamental rationale for the project.

A deeper source of uncertainty stemmed from the evolving regulatory environment. The Korean government, under the leadership of President Lee Jae-myung, has shifted its focus toward stablecoins, introducing legislation that would allow a broader range of companies—including non-banks and payment providers—to issue won-based stablecoins. The proposed Basic Digital Asset Act transfers oversight of stablecoin issuers from the central bank to the Financial Services Commission, lowers capital requirements for issuers, and relaxes rules for crypto exchanges. This legislative pivot has created ambiguity about the respective roles of CBDCs, stablecoins, and tokenized deposits, and how these instruments might coexist within the financial system. The central bank itself has acknowledged the need to “wait and see” how the regulatory landscape develops, particularly as the distinctions between these digital assets remain unclear.

In response to these developments, the participating banks have begun to pivot toward stablecoin issuance, forming a consortium to develop their own won-pegged stablecoins. This move is seen as a more commercially viable alternative, leveraging the new regulatory environment and the government’s encouragement of private-sector digital currency innovation. The shift underscores a broader trend in which traditional financial institutions are increasingly willing to explore alternatives to central bank-driven digital currency projects, especially when those alternatives offer clearer commercial prospects and regulatory support.

The implications of the pause in Project Han River extend beyond South Korea’s borders. The experience highlights the practical challenges of implementing large-scale CBDC projects, including high costs, operational complexities, and uncertain business models. These challenges are likely to serve as cautionary lessons for other central banks and financial regulators worldwide, emphasizing the importance of aligning incentives, clarifying regulatory frameworks, and ensuring that digital currency initiatives are both commercially viable and technologically robust. The Korean case also illustrates the growing appeal of stablecoins as a private-sector solution to digital payments, with banks and other financial institutions increasingly viewing them as a more flexible and cost-effective alternative to state-led CBDCs.