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The Bank of Korea<\/a> is set to dramatically scale up its central bank digital currency (CBDC) initiative this September, launching the second phase of its trial with a target of up to 500,000 participants.<\/p>\n Dubbed Project Hangang<\/a>, the expanded pilot represents a major push toward commercialization after an initial trial showed limited consumer engagement. According to a report by the Yonhap News Agency<\/a>, the upcoming phase will expand the network of participating commercial banks from seven to nine, adding Gyeongnam Bank and iM Bank to the roster.<\/p>\n Unlike the initial phase, which ran from April to June 2025, Phase 2 will introduce real-world financial applications. Most notably, the central bank plans to test government subsidy disbursements using programmable tokens. This feature allows the state to bake spending rules directly into the digital currency, restricting funds to specific vendors, purposes, or timeframes to minimize fraud and automate audits.<\/p>\n To address the low engagement seen in the first phase\u2014where only 42% of the 81,000 wallet holders actually made a transaction\u2014the Bank of Korea<\/a> is introducing several consumer-focused features. The new phase will support biometric fingerprint approvals, person-to-person transfers, automatic wallet top-ups linked to traditional bank accounts, recurring auto-payments, cash receipt generation, and interest payments.<\/p>\n ### A Hybrid Architecture<\/p>\n The underlying architecture of South Korea’s digital currency relies on a two-tier system. The central bank issues a wholesale CBDC<\/a>, which is restricted to settlement between financial institutions. Commercial banks then issue deposit tokens\u2014blockchain-based representations of traditional bank deposits\u2014for public use.<\/p>\n Kim Dong-seop, head of the central bank’s Digital Currency Planning Team, described this structure as a middle ground between a CBDC and a stablecoin. For merchants, the adoption of deposit tokens could significantly lower transaction costs by bypassing the interchange fees charged by traditional card networks.<\/p>\n The infrastructure for Phase 1, which processed 114,880 transactions across 12,000 merchants, cost participating banks an estimated 30 billion to 35 billion won, according to data monitored by the Human Rights Foundation’s CBDC tracker.<\/p>\n ### Policy and Regulatory Shifts<\/p>\n The expansion of Project Hangang aligns with broader financial reforms in South Korea. BOK Governor Shin Hyun-song made the digital currency initiative a central pillar of his first policy address after taking office in April 2026.<\/p>\n Concurrently, commercial institutions are preparing for a shifting regulatory landscape. Hana Bank has already begun designing systems for a won-backed stablecoin, anticipating new legislation following intense regulatory debates in Seoul since mid-2025. Furthermore, the Ministry of Economy and Finance has announced plans to amend a 76-year-old national asset law to formally classify cryptocurrencies as national assets.<\/p>\n ### Global Divergence and Surveillance Concerns<\/p>\n While South Korea moves forward with its digital currency plans, the technology remains highly controversial globally. Critics warn that the programmable nature of deposit tokens, which allows governments to restrict where and how money is spent, could easily pave the way for financial surveillance and coercion.<\/p>\n Similar mechanisms have already been deployed in China, where the state-backed digital yuan has been issued with expiration dates to force consumer spending. Researchers writing for Lawfare<\/a> have previously warned that such features could establish a global precedent for state-controlled financial tracking, as every transaction on a CBDC ledger is visible to the central bank.<\/p>\n In stark contrast, the United States has legally barred the issuance of a retail central bank digital currency. The 21st Century ROAD to Housing Act, which includes a four-year ban on CBDC issuance, officially became law on July 11 after President Donald Trump declined to sign it within the constitutional 10-day window due to unrelated legislative disputes.<\/p>\n