South Korea’s central bank plans to launch the second phase of its central bank digital currency pilot in September, expanding the program to include two regional banks and testing new payment features and government subsidy distribution using tokenized bank deposits, according to a report from The Korea Economic Daily on Monday.
The Bank of Korea’s expanded pilot will add Busan Bank and DGB Daegu Bank to the existing consortium, which currently includes seven commercial banks. The new phase will test peer-to-peer payments, offline transactions, and programmable money features for government subsidy payments, marking a significant step toward real-world CBDC deployment.
“The second phase focuses on practical use cases that can demonstrate tangible benefits to citizens and businesses,” a Bank of Korea official told The Korea Economic Daily. “We are particularly interested in testing how tokenized deposits can streamline government benefit distribution while maintaining monetary policy control.”
The pilot will simulate the distribution of local government subsidies — such as youth allowances and disaster relief funds — through tokenized commercial bank deposits on a permissioned ledger. Recipients would receive digital tokens redeemable at participating merchants, with transactions settling instantly on the shared ledger.
South Korea has been among the most methodical major economies in CBDC development. The Bank of Korea completed its first phase in December 2023, testing basic minting, redemption, and inter-bank transfer functions with seven banks. The pilot processed over 2,000 transactions with no system failures, according to the central bank’s January report.
Phase two introduces programmable money capabilities, allowing subsidies to be coded with expiration dates, spending category restrictions, or geographic limitations. The Bank of Korea said this could reduce fraud and administrative costs in government payment programs, which totaled over 50 trillion won ($36 billion) in 2023.
“Programmable money for government payments is one of the clearest use cases for CBDCs,” said Oh Se-young, a fintech researcher at Seoul National University. “But it raises questions about privacy and the degree of state oversight over citizen spending.”
The Bank of Korea emphasized that the pilot does not signal an imminent CBDC launch. A final decision on issuance will depend on phase two results, legal framework readiness, and public consultation scheduled for late 2026. The central bank has consistently maintained that any CBDC would complement, not replace, cash.
South Korea joins a growing list of advanced economies conducting wholesale and retail CBDC pilots, including Japan, the European Central Bank’s digital euro project, and the U.K.’s digital pound consultation. The Bank for International Settlements estimates over 90% of central banks are now exploring CBDCs.
Source: Cointelegraph
