Introduction
The South Korean government is set to initiate a groundbreaking pilot program that will enable public officials to utilize blockchain-based deposit tokens for covering operational costs, rather than relying on traditional government purchase cards. This initiative received the green light from the Ministry of Science and ICT during the 45th ICT Regulatory Sandbox Review Committee meeting held on September 21, with an announcement following a day later, as reported by The Chosun Daily.
Overview of the Pilot Program
This innovative project is part of a broader attempt to integrate digital currencies into governmental expenditures and was one of nine initiatives granted regulatory relief during the meeting. By employing deposit tokens linked to the Bank of Korea’s digital currency framework, officials will be able to execute eligible payments via smartphone QR code scans. Currently, South Korea’s National Treasury Funds Management Act restricts government expense payments to conventional methods such as government cards and bank transfers. This regulatory sandbox approach eliminates the need for an immediate alteration of existing laws to trial digital currency usage in government operations.
Participation and Implementation
The pilot will see participation from six major banks, including KB Kookmin Bank and NH NongHyup Bank, facilitating transactions typically settled with physical cards, such as expenses related to promoting business activities. Under the Bank of Korea’s Project Hangang, which is focused on developing blockchain-based digital currency, consumers will not directly spend a retail Central Bank Digital Currency (CBDC). Instead, participating commercial banks will issue the deposit tokens that represent actual bank deposits, with the central bank’s wholesale CBDC used to settle transactions between financial institutions.
Benefits and Features
The blockchain framework is designed to allow for simultaneous payment and settlement, with provisions for programmable controls to restrict transaction categories in line with government spending guidelines. This mechanism is aimed at enhancing transparency in governmental financial activities, as well as potentially lowering transaction fees and expediting settlements, benefiting small businesses that accept such payments.
Development Timeline
Before rolling out this pilot, South Korea has spent over a year fine-tuning the essential technology. The first phase of Project Hangang, initiated in April 2025, allowed up to 100,000 users to convert bank holdings into deposit tokens for transactions at verified vendors via QR codes. The program expanded in March 2026 with more financial institutions and the inclusion of real-use cases like government subsidies, enabling peer-to-peer wallet transfers and automatic fund replenishments.
Integration with Existing Systems
To better support deposit tokens within existing commercial payment frameworks, the Ministry of Science and ICT and the Korea Internet & Security Agency began a 9.6 billion won initiative in July. This program aims to seamlessly integrate Project Hangang’s capabilities with current merchant and consumer payment systems, facilitating transactions without requiring businesses to upgrade their payment terminals.
Future Plans and Considerations
As discussions continue around implementing deposit tokens for commercial purposes, the Bank of Korea and participating banks are formulating plans for an expanded pilot framework, focusing on both government operations and broader business applications. These plans underscore the goal of retaining essential anti-money laundering and fraud prevention measures while enhancing services for users.
Conclusion
Project Hangang features a dual-layer architecture that delineates central bank settlements from the digital payment methods used by consumers and businesses, preserving consumer claims against commercial banks rather than directly against the central bank. Despite ongoing debates regarding the nature of CBDCs and stablecoins in South Korea, the enhancements to Project Hangang aim to foster a more robust and flexible digital currency ecosystem.
In July, the Bank of Korea also undertook tests on tokenized central bank reserves for domestic transactions, liaising with international frameworks through collaborations with banks such as NongHyup and Shinhan. During the September review meeting, amidst the approval of the deposit token pilot, additional projects were sanctioned, including e-notification systems for urban redevelopment and mobile document delivery services for telecommunications, further reflecting the country’s commitment to integrating digital solutions across various sectors.
