The Bank of Korea and commercial banks are at odds over the won-based 'stablecoin.' The Central Bank is showing strong will for the introduction of digital won with ongoing technical verification and pilot projects for central bank digital currency (CBDC), while major commercial banks are focusing on a private-sector digital currency ecosystem. The second pilot experiment of CBDC, conducted jointly by the Bank of Korea and the commercial banks, is also expected to be postponed.
According to the financial sector on the 26th, the CBDC pilot experiment titled 'Project Han River,' which the Central Bank has been conducting with commercial banks since last March, will be completed on the 30th. The experiment aimed to convert deposited deposits into electronic tokens to be used like cash at merchant payment locations. The Central Bank was planning to conduct a second pilot experiment in October, which would include person-to-person remittances and merchant expansions based on this.
However, the banking sector is resistant to the Central Bank's insistence on proceeding with the experiment without a clear government stance. As a result, the schedule for the second pilot experiment is likely to be delayed. Commercial banks are leaning more toward the introduction of stablecoins than CBDCs. Recently, KB Kookmin Bank and Hana Bank have applied for trademarks incorporating their brands KB and Hana in relation to the won (KRW), while KakaoBank and Kakao Pay were the first in the financial sector to file related patents.
Both CBDCs and stablecoins are digital assets. However, CBDCs have a centralized structure, with the government and Central Bank controlling issuance, distribution, and supervision. While they are advantageous for implementing financial policies and tracking illegal funds, interoperability is lessened due to varying designs and regulations by country, often limiting them to domestic payments. In contrast, stablecoins are based on decentralized structures utilizing public blockchain, allowing anyone to access them via digital wallets without border or time constraints. This provides an advantage in financial inclusion and global accessibility.
Commercial banks point out that the Central Bank demands significant costs and resources from the banking sector to conduct the CBDC experiment without a clear commercialization plan or long-term vision. According to the banking sector, commercial banks assumed approximately 30 billion won in expenses for the first experiment, but the participation rate and results were far below expectations. Nevertheless, the Central Bank remains passive about the financial burden and merely urges the experiments. From the perspective of financial consumers, there is no reason to transition the won to CBDC again when various forms of payment including cards and easy payments can already be made through the current financial system.
On the other hand, the Central Bank opposes the introduction of stablecoins. It is concerned that if non-bank stablecoins spread, a 'coin run' similar to a massive withdrawal of bank deposits could occur. Companies issuing stablecoins purchase short-term U.S. government bonds to guarantee the promise that they are tied to legal currency. When issuing $1 worth of coins, they buy $1 worth of government bonds to sell off the bonds and provide dollars when coin holders demand to exchange their stablecoins back to dollars. However, if holders sell off their stablecoins en masse in a crisis situation, this could lead to large-scale government bond sales that may shock the financial markets.
There are also concerns about won-based stablecoins issued on public blockchains. The won-based stablecoins issued by non-banks currently under discussion are likely to be issued on widely used public blockchains. If won-based stablecoins are issued on public blockchains, the entity operating the network could be a foreign company or a platform developed abroad.
In this case, actual payment, remittance, and transaction records may be stored on foreign servers or with overseas operators, and the authority to manage and supervise this data could also be transferred outside of domestic institutions. Even if won-based stablecoins circulate domestically, if their payment infrastructure and data rely on foreign public blockchains, it could threaten monetary sovereignty and data sovereignty.
The Central Bank is discussing plans to proceed with the second CBDC experiment in collaboration with the banking sector. They also stated that they would collaborate in a way that would entail the Central Bank shouldering more of the costs that the banks are concerned about. A banking sector official noted, "While we understand the Central Bank's intentions and concerns as a Central Bank, it seems important to introduce stablecoins for the complete digital transformation of the financial industry," adding, "We are discussing methods to use both models together rather than choosing one over the other."