Bank of Korea to Launch Phase 2 of CBDC Pilot in September, Targeting 500,000 Users

Bank of Korea's CBDC Pilot Project Moves to Phase 2

The Bank of Korea has announced its plan to transition to Phase 2 of its Central Bank Digital Currency (CBDC) pilot project, the "Han River Project," as early as September 2025, based on the results of initial testing conducted in 2025.

In Phase 1, which took place from April to June 2025, seven major banks and approximately 12,000 participating merchants were involved. About 81,000 dedicated wallets were opened, and over 110,000 payment transactions were successfully processed. The participating banks invested between 30 billion to 35 billion won (approximately 33 million to 38.5 million USD) to establish this infrastructure.

Starting in September, Phase 2 will see the addition of two new banks, Gyeongnam Bank and iM Bank, expanding the total number of participating banks to nine. Additionally, the number of service users will significantly increase to a maximum of 500,000, allowing for a comprehensive demonstration of real-life convenience.

New Features and "Programmable" Subsidies for Practical Use

The most notable feature of Phase 2 is the incorporation of advanced financial functionalities beyond simple payment verification.

Biometric authentication logins, direct peer-to-peer transfers, automatic charging linked to deposit accounts, scheduled payments, and interest accrual features will be widely available. The system structure involves the Bank of Korea issuing a wholesale CBDC for interbank payments, with each commercial bank issuing general deposit tokens backed by this CBDC in a two-tier structure.

Moreover, a noteworthy aspect is the experiment with government subsidies using "programmable tokens" that allow conditions to be set via code. By distributing digital currency with predefined uses, scopes, and validity periods, the project aims to simplify the disbursement process, reduce audit costs associated with paper documentation, and prevent misuse. It is also expected to validate lower payment costs for small and medium-sized enterprises compared to traditional card payment fees.

Expanding Ecosystem and Privacy Concerns

This project is set to operate without a specific end date and is positioned as a key financial policy issue even after the appointment of the new governor.

In the private sector, there are ongoing discussions about won-pegged stablecoins by major banks and legislative moves by the government to classify cryptocurrencies as national assets, indicating significant changes in the overall digital asset ecosystem.

However, there are also strong concerns regarding the programmability of currency and centralized transaction history management from the perspective of individual freedom and privacy. Fears that designated uses, deadlines, or wallet freezing functions could lead to excessive tracking of funds or state control are common challenges in CBDC development across countries.

Responses from other countries vary; while China's digital yuan (e-CNY) is advancing its operations, the United States has seen the passage of legislation limiting CBDC implementation under specific conditions, highlighting a global contrast in regulatory models. The second phase of the "Han River Project" in South Korea is expected to serve as a valuable case study for balancing the practicality and control of digital currencies, attracting attention to future developments.

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