Introduction
The Central Bank of South Korea has unveiled plans to utilize its Central Bank Digital Currency (CBDC) for distributing government subsidies amounting to more than 110 trillion won, equivalent to $79.3 billion. This initiative was disclosed by Rhee Chang-yong, the Governor of the Bank of Korea (BOK), during a press conference that took place in Seoul on August 28. Rhee’s announcement follows a Monetary Policy Committee meeting held earlier in the day, indicating a significant pivot in the country’s approach to digital currency.
Background and New Initiatives
Surprisingly, these developments come on the heels of the BOK’s decision in June to suspend its CBDC experimentation, opting instead to focus on alternatives powered by stablecoins. However, the new subsidy program, which aims to integrate CBDC within the broader ambit of the Han River Project—a major pilot initiative for digital currency—originates from proposals made by the Ministry of Strategy and Finance.
Officials from the Ministry anticipate that using CBDC for subsidies will enhance fiscal policy efficiency and minimize the risks of fraud. Rhee emphasized that instead of traditional payment methods like bank transfers or physical vouchers, contractors would receive CBDC tokens directly. The expectation is that blockchain technology will facilitate the tracing of these funds, thereby preventing misuse.
Private Sector Involvement
Unlike the initial CBDC pilot program that concluded in the first half of the year, which primarily involved commercial banks and their clients, this new project is envisioned as being driven by the private sector. Many banks that participated in the previous pilot expressed dissatisfaction with the CBDC rollout, particularly regarding their obligations to bear infrastructure investment costs. Nevertheless, Rhee indicated that the BOK is eager to collaborate with banks still interested in incorporating CBDC into their operations.
Future of CBDC and Stablecoins
In light of the BOK’s recent focus on stablecoins, Rhee reassured stakeholders that these developments do not signify the end of its CBDC ambitions. The Governor noted that upon the completion of new legislation concerning cryptocurrency and stablecoins, the BOK intends to expedite the Han River Project. He highlighted the importance of a phased approach to adopting CBDCs and stablecoins, starting with traditional banking institutions under the BOK’s regulatory oversight.
Concerns and Legislative Challenges
Tensions are rising among South Korean financial and cryptocurrency leaders, who voice concerns over the stagnation of progress relating to stablecoin legislation. Disagreements among lawmakers regarding whether tech companies should be permitted to issue KRW-pegged stablecoins have contributed to this slowdown. Some conservative factions argue for limiting issuance to commercial banks, while progressive voices caution that such restrictions could inhibit innovation in the sector.
