The Bank of Korea will use only institutional central bank digital currency (CBDC) as the settlement asset for next year's government bond tokenization pilot, excluding private stablecoins at this stage. According to a Bank of Korea report, the approach is intended to secure settlement finality and minimize risk. Settlement finality — the point at which a completed transaction becomes irrevocable — is the core safeguard the Bank wants embedded in the pilot's cash leg.

In materials submitted ahead of a parliamentary audit on the 12th, the central bank said it is not considering stablecoins or similar instruments for settling tokenized government bonds. The pilot follows the government's second-half economic growth strategy, announced in July, which proposed issuing and circulating bonds as blockchain-based digital assets.

By tokenizing bonds, ownership transfers and transaction payments could take place simultaneously. The Bank described its objective as providing an institutional digital currency capable of immediately guaranteeing settlement finality and minimizing settlement risk. If both sides of a bond trade settle in a single step, neither participant is left holding a delivered asset against an unpaid counterparty — the risk profile the settlement-asset choice is meant to address.

Institutional CBDC Chosen for Settlement

Institutional CBDC is issued by a central bank to financial institutions rather than to the public. According to the Bank, direct central bank issuance can eliminate counterparty settlement default risk. The choice also sets the pilot's settlement asset apart from private stablecoins, which it has ruled out for now. In practical terms, every cash movement in the bond pilot would settle in central bank money rather than a privately issued instrument.

The policy is one element of a pilot whose details remain under discussion. The Bank created an Asset Tokenization Team within its Digital Currency Division on August 6. The team has an authorized headcount of three, with two positions filled.

Planning With Ministries in Early Stages

The central bank said discussions with the Ministry of Economy and Finance are in their early stages, with the two sides working to specify the pilot's content and scope. The Bank has not decided how the project will connect with Project Hangang, its existing digital currency pilot.

“Nothing has been finalized yet,” the Bank said about that connection. It plans to review the relationship while setting the tests' content and scope. The Bank also plans to examine legal and technical requirements with the Financial Services Commission and the Korea Securities Depository. As of September, a task force among the agencies had not been formed.

Project Hangang Expands in Second Phase

While the bond pilot remains in the scoping stage, Project Hangang is proceeding separately with a larger second phase, extending a program already built around real transactions to more banks and users. Participating banks are set to increase from seven to nine, including Gyeongnam Bank and iM Bank. The number of eligible real-transaction users is planned to rise from a maximum of 100,000 to 500,000. The Bank also plans to broaden deposit-token uses to convenience stores and other venues.

A test of government subsidy disbursement has been added. The project will pay 30 billion won (approximately $22.5 million) in electric vehicle charging infrastructure subsidies using deposit tokens, in order to examine disbursement and settlement processes.

The Project Hangang budget is 12.52 billion won (approximately $9.4 million) this year, up 61.8% from 7.74 billion won (approximately $5.8 million) last year. The Bank plans follow-up real transactions within the year and to continue the pilot during the designated period for innovative financial services.

Design Details Remain Open

The government bond pilot still needs a defined scope and technical design. How the institutional CBDC will be issued and circulated, and which interoperability standards will connect it with tokenized bonds, have not been determined. The Bank's decision centers the pilot on central bank money while agencies continue planning, making the settlement asset the program's clearest parameter so far.

The Bank has said it will continue discussions with the Ministry of Economy and Finance to define the pilot. Those talks, alongside legal and technical reviews with other agencies, are the next stated steps toward setting the program's scope.