The Bank of Korea (BOK) has postponed the second round of its central bank digital currency (CBDC) tests, largely due to the South Korean government’s increasing backing for local-currency stablecoins.

Financial outlets The Chosun Daily and Yonhap News Agency reported on Monday that the BOK informed participating banks late last week of a temporary suspension and rearrangement of the postponed tests.

According to sources cited by news agencies, the central bank informed banks about halting the tests scheduled for later this year. A senior official at one of the seven participating banks revealed the BOK is waiting for clarity on government plans for stablecoins, which are crypto tokens pegged to national currencies like the won, to determine how a CBDC would integrate with them.

Newly elected President Lee Jae-myung, who campaigned heavily on crypto-related policies, pledged to allow for the issuance of stablecoins. His party submitted a bill earlier this month proposing that companies issue such tokens provided they have a minimum equity capital offset, initially set at 500 million Korean won ($370,000).

Banks Unhappy with CBDC Testing Cost

The delay comes partly as several participating banks expressed significant unhappiness with the “excessive” cost of the CBDC project, which reportedly pushed the second phase to the brink of collapse.

These institutions reportedly voiced concerns to the central bank that the trial was overly expensive and that specific commercialization plans were not established for the digital won currency. They also demanded greater governmental detail on how the CBDC would operate.

To address these concerns, there are internal discussions suggesting that the second phase of testing might be rescheduled for the first half of next year and potentially involve fewer participating financial institutions, aiming for a “smaller scale test.” Originally, the tests were planned in two phases.

The first phase tested payments using the central-bank-issued currency with 100,000 participants from April 1 to June 30. The second phase aimed to expand the network to include more merchants, focusing on features like cross-border remittances.

Shift Towards Stablecoins

The banks appear to advocate for a greater focus on issuing their own stablecoins, perceiving perhaps a more immediate financial benefit and established regulatory pathway from those instruments.

It was further reported on Wednesday that a coalition of eight South Korean banks are planning to launch a Korean won-backed stablecoin next year.

Financial institutions representing roughly half the participant banks in the earlier CBDC stage trials – KB Kookmin, Shinhan, Woori, and NongHyup – are part of this stablecoin consortium.

Market Reaction

On Monday, shares in some South Korean fintech companies experienced sell-offs following the news of the CBDC suspension and the banks’ apparent shift in focus.

Mobile payment service KakaoPay Corp’s shares fell by approximately 7% by 2pm KST, while competitor Hecto Financial’s stock dropped around 5%. Investments from KB Financial Group’s parent company (KB Kookmin’s holding company) rose by about 0.8%, and Shinhan Financial saw gains of 1.6% during the day.