After three months of testing, South Korea’s central bank has postponed further development of its central bank digital currency (CBDC), as both the government and local banks have increased their support for stablecoins.

Postponement of CBDC Trials

The Bank of Korea has suspended the second round of CBDC trials, which were originally scheduled to take place later this year. Meanwhile, eight South Korean banks are collaborating on a stablecoin backed by the Korean won, aiming for its launch next year.

Uncertainty in Coexistence

This shift may signal a broader trend among central banks globally, moving away from CBDCs in favor of stablecoins. A senior official at one of the participating banks stated that coexistence between CBDCs and stablecoins remains uncertain according to Yonhap News Agency.

Cost Concerns and Tests

There are signs that the initial CBDC tests soured the banks on its potential. One senior banking official indicated that seven participating banks became unhappy with the cost of the second phase of the CBDC trials. Half of these banks also joined in the stablecoin project.

The First Stage of Tests

During the first stage, 100,000 participants tested payments using the central bank-issued currency from April 1 to June 30. Up to 100,000 citizens aged 19 or older and holding an account with a participating bank could convert their deposits into the CBDC for use at stores like 7-Eleven. The second phase was planned to expand the number of merchants involved.

Concerns About Privacy

Some worried that CBDCs might grant governments too much insight into citizens’ transaction histories, prompting advocates to instead support stablecoins as a better solution. Stablecoins combine the stability of fiat currencies with the efficiency of cryptocurrencies.

New Governmental Direction

The newly inaugurated South Korean President Lee Jae-myung is a strong supporter of crypto and has promised to back a won-based stablecoin market during his campaign. His Democratic party has already submitted a bill that would allow qualifying companies, including nonbanks, to issue stablecoins.

“We don’t know whether the issuing entity of stablecoins will be banks, big tech, or fintechs,” a Korean bank official told Yonhap. “We have no choice but to prepare for both situations before they become legislative.”