South Korea’s central bank has paused further testing of its central bank digital currency (CBDC), as domestic banks pivot towards launching stablecoins amid evolving regulatory signals from the government.

The Bank of Korea (BoK) reportedly informed the seven participating financial institutions in its ongoing CBDC trials that the second phase of testing—originally scheduled for later this year—has been suspended. The decision comes as policymakers increasingly embrace the potential of local currency-backed stablecoins, casting uncertainty over the future of the digital won project.

According to local news outlets Yonhap News Agency and The Chosun Daily, the suspension follows concerns raised by participating banks over the cost and commercial viability of the CBDC pilot. A senior banking official revealed that the project was already “on the verge of collapse” due to dissatisfaction among banks, who cited the absence of a clear roadmap for real-world implementation.

The first phase of the pilot, which ran from April 1 to June 30, 2025, saw 100,000 participants test the CBDC for payment transactions with select merchants, including convenience chain 7-Eleven. The now-delayed second phase was intended to scale up merchant participation and expand into remittance services.

Shift in Policy and Priorities

The policy landscape is also rapidly shifting under newly elected President Lee Jae-myung, whose administration has proposed legislation to support the issuance of stablecoins. His party recently introduced a bill that would allow entities with a minimum capital of 500 million Korean won (approx. $370,000) to issue stablecoins pegged to the Korean won.

The prospect of commercial returns from privately issued stablecoins is drawing increasing interest from banks. Reports suggest that eight leading South Korean banks—including KB Kookmin, Shinhan, Woori, and NongHyup, several of which also participated in the CBDC trial—are now collaborating on the development of a won-backed stablecoin, targeted for launch by next year.

A senior official told Yonhap that the BoK is now reassessing its timeline and scope for CBDC testing and may shift the second phase to early 2026 while narrowing participation to fewer financial institutions.

Market Reaction

The policy shift has had an immediate impact on fintech and financial markets. Shares in KakaoPay Corp, a major mobile payments platform, fell 7% by Monday afternoon, while digital payments firm Hecto Financial dropped 5%. In contrast, traditional financial institutions like KB Financial Group and Shinhan Financial Group posted modest gains of 0.8% and 1.6%, respectively, buoyed by investor optimism around stablecoin opportunities.

Implications for Regulation and Innovation

The BoK’s decision underscores the complex balance between innovation, regulation, and industry buy-in in the transition toward digital currencies. While central banks globally continue to explore CBDCs, the South Korean case highlights how market forces and political will can accelerate alternative models such as stablecoins, especially when financial institutions see clearer paths to monetisation.

As the regulatory debate unfolds, the implications extend beyond national borders—raising important questions around interoperability, monetary policy autonomy, and the future of centralised digital currency frameworks in a competitive digital finance landscape.