The Bank of Korea has expanded its digital Korean Won pilot project, dubbed "Project Hangang," by including Kyongnam Bank and iM Bank. This marks a new phase focused on large-scale, real-world application, aiming to comprehensively assess the feasibility and potential economic impact of a central bank digital currency (CBDC) in South Korea. As the nation's core financial institution since its establishment in 1950, the Bank of Korea has been dedicated to price stability and effective monetary policy, positioning itself as a pioneer in digital currency innovation with this digital Won pilot.
From Technical Validation to Practical Application
The initial phase of "Project Hangang" concentrated on building and validating the technical foundations of the digital Won. With the launch of the second phase, the project's focus has shifted towards enhancing its operational breadth and integrating digital currency into everyday economic activities. This phase aims to explore the practical application potential of the digital Won within the national financial and payment systems under real-world conditions, rather than in restricted laboratory settings.
Tokenized Subsidy Distribution, Transaction Cost Optimization, and P2P Transfers
One of the core tasks in this new phase involves distributing 110 trillion Korean Won in government subsidies through the issuance of digital deposit tokens. The Bank of Korea expects this to improve the transparency and controllability of public spending, ensuring funds are precisely allocated to their intended purposes and preventing misappropriation. The introduction of programmable digital currency allows for the attachment of conditional logic to fund allocation, offering a higher degree of oversight and security compared to traditional bank transfers.
Another significant objective is to reduce transaction costs. The pilot will assess whether the digital Won can substantially cut the payment processing fees currently borne by merchants. For large enterprises, and particularly for small and medium-sized businesses whose profit margins are eroded by credit card processing fees, an alternative digital currency solution promises more favorable economic outcomes.
Furthermore, peer-to-peer (P2P) transfer functionality, which was not fully realized in the initial pilot, has now been included for evaluation. The introduction of this feature will make the digital Won more aligned with the needs of everyday consumer transactions, rather than being confined solely to inter-institutional settlements.
Looking ahead, the pilot project will also explore the compatibility of the digital Won with artificial intelligence (AI) agents. These autonomous entities may, in the future, independently conduct purchases using the digital Won, signaling an early exploration into the convergence of emerging technologies with financial infrastructure. While the commercial implications of this innovation remain unclear, the Bank of Korea is committed to making the digital Won a flexible tool adaptable to future payment models.
Increased Institutional Participation, Diversified User Base
With the addition of Kyongnam Bank and iM Bank, alongside the seven major financial institutions already participating—KB Kookmin Bank, Shinhan Bank, Woori Bank, Hana Bank, NH Nonghyup Bank, IBK Industrial Bank, and BNK Busan Bank—the digital Korean Won pilot project now encompasses nine key financial institutions. This expanded participation not only facilitates interoperability testing between different institutions but also supports the analysis of diversified customer segments, as regional banks often serve niche markets that larger institutions might overlook.