Korea may be the first battleground in a global struggle between central banks and private stablecoins for control of digital payments, as the Bank of Korea (BOK) governor makes unprecedented visits to major banks to promote CBDC, tokenized deposit alternatives over private stablecoin initiatives.
The Korea Times reported that Governor Rhee Chang-yong personally visited the country’s six largest banks to discuss wholesale central bank digital currency (wCBDC) projects, in what it described as an “unprecedented move.” The intervention comes as Korea’s largest banks announced plans to create a joint stablecoin just weeks after joining a central bank pilot project for tokenized deposits, setting up a potential race between public and private digital currency initiatives.
This competition in Korea could serve as a template for similar challenges worldwide, as central banks race to maintain monetary control in an increasingly digital financial landscape.
Stablecoins vs deposit tokens: the stakes
To appreciate the significance of these discussions, it’s important to note three key differences between stablecoins and most tokenized deposits. One is that stablecoins are fully backed, resulting in so-called “narrow banking”, which impedes the availability of credit available in the economy compared to fractional reserve banking. Another relates to central bank involvement. In some jurisdictions, despite stablecoins being used for payments, they are not always under the central bank’s supervision, potentially impeding their ability to influence monetary policy. Finally, most tokenized deposit projects use permissioned blockchains, whereas stablecoins are on permissionless blockchains which have significant audiences and developer bases and are more open for creating applications.
Governor’s wCBDC push
The Governor spent 30 minutes last week at the headquarters of each major bank – KB Kookmin, Shinhan, Hana, Woori, NH NongHyup, and Industrial Bank of Korea – for one-on-one meetings with the CEO, with wholesale CBDC (wCBDC) projects being a focus of the discussions.
Governor Rhee outlined the long-term benefits of participating in two central bank projects and agreed to shoulder one-third of the costs of Project Hangang, the domestic tokenized deposit initiative. This financial incentive came as the banks – except for Hana Bank – had announced plans for their joint stablecoin just weeks after the Hangang pilot’s commencement in April.
The central bank is currently involved in two major CBDC-related projects, both involving wholesale CBDC for institutional use. One is Project Agorá for cross-border payments organized by the BIS and involving seven central banks and more than 40 institutions. The other is Project Hangang, a domestic project in which wCBDC supports tokenized deposits that consumers can use for blockchain-based payments, with trials involving the major banks plus 100,000 consumers.
Following the individual meetings, on Monday there was a joint meeting at the central bank that included the bank CEOs and Timothy Adams, the CEO of the Institute of International Finance (IIF). The IIF coordinates the cross-border CBDC Project Agorá. Stablecoins and deposit tokens were also discussed at the meeting.
Deposit tokens on public blockchains
The Governor has previously expressed concerns about the potential for stablecoins issued by companies like Visa to threaten monetary sovereignty. However, in a separate report by Korea’s News1, the central bank appears to be making a strategic accommodation, with Deputy Governor Lee Jong-ryeol saying it was considering allowing deposit tokens on public blockchains.
“We are considering a direction in which it (deposit tokens) will coexist within the entire digital currency system in conjunction with stablecoins issued by the private sector,” said Mr Lee, while reiterating monetary sovereignty concerns about global stablecoins.
This potential shift toward allowing deposit tokens on public blockchains could bridge the gap between the controlled environment of CBDC projects and the open ecosystem that makes stablecoins attractive to developers and users.
Project Hangang already supports different types of tokenized deposits. There are those backed by bank deposits, with the wCBDC used for interbank settlement. But it also envisages an e-money style deposit token that is fully backed by wCBDC. For tokens used on third-party platforms such as for the settlement of securities transactions, it envisages using a variation of the e-money style tokens.
The country is in the process of working on stablecoin legislation, with the BOK vying to have a central role in their supervision.
Global implications
Korea’s experience represents more than a domestic policy debate. The unprecedented nature of the Governor’s bank visits suggests the urgency central banks feel in the transition to digital currencies. As other jurisdictions grapple with similar tensions between innovation and control, Korea’s approach of combining direct engagement, financial incentives, and strategic accommodation could become a playbook for central banks worldwide seeking to maintain their role in an evolving digital payments landscape.
