South Korea expands CBDC pilot to integrate with banks

South Korea is advancing its central bank digital currency initiative into a new phase that integrates the digital currency directly with the core systems of commercial banks. The expanded pilot, part of the ongoing Project Hangang, will test deposit tokens for a wider range of banking functions, including person-to-person transfers, merchant payments, and the distribution of government subsidies via digital vouchers.

The Bank of Korea, in collaboration with participating financial institutions, is developing the technical infrastructure to connect digital wallets and blockchain-based platforms with existing bank account ledgers, settlement processes, and mobile banking services. This phase moves beyond earlier limited payment trials to simulate how a wholesale CBDC could operate within the real-world banking environment. A key objective is to enable continuous operation of deposit token services, laying groundwork for potential future commercial rollout.

Under the system, commercial banks issue digital deposit tokens to customers, which are backed by the central bank's wholesale digital currency. These tokens can be held and transacted through electronic wallets integrated into...