South Korea to test digital won deposit tokens for government subsidies

Government to pilot deposit tokens for treasury subsidies

According to local reports, South Korea’s government will formally launch a pilot program on March 24 through a memorandum of understanding expected to be signed by:

Deputy Prime Minister and Finance Minister Koo Yun-cheol

Minister of Climate, Energy, and Environment Kim Sung-hwan

Bank of Korea Governor Rhee Chang-yong

The agreement will establish a pilot for executing treasury funds using institutional digital currency and bank-issued deposit tokens, with the goal of converting subsidy payment and settlement processes into a blockchain-based system.

The first use case will focus on mid-speed electric vehicle charging infrastructure, specifically chargers with output of 30 to 50 kilowatts, under a project valued at 30 billion won (about $20 million).

The Korea Environment Corporation, which will manage the subsidy program, is expected to begin accepting applications in May, with participant selection starting in June. Subsidies would then be disbursed in the form of deposit tokens rather than through conventional treasury payment rails.

That makes this the first known instance of South Korea applying the Bank of Korea’s digital currency framework directly to a government spending program.

Phase two of Project Hangang expands to nine banks

The treasury subsidy pilot comes as the Bank of Korea and nine commercial lenders have begun phase two of Project Hangang, the next stage of the country’s digital won testing program.

The second phase adds Kyongnam Bank and iM Bank to the original seven participating banks, expanding the test network for won-pegged deposit tokens issued by banks and backed by a wholesale CBDC layer operated by the central bank.

Unlike a retail CBDC model where the central bank issues digital cash directly to consumers, South Korea’s structure is centered on bank-issued deposit tokens that function as tokenized claims on deposits, while using central bank infrastructure as the settlement backbone.

This design is increasingly being watched as a more politically and operationally viable path for digitizing payments without fully disintermediating the banking sector.

South Korea is shifting from consumer testing to public finance

The Bank of Korea has already completed earlier real-transaction tests involving members of the public.

But phase two marks a strategic shift: the program is now being positioned as infrastructure for government disbursements, merchant payments, and broader payment system modernization, rather than only a retail experimentation exercise.

A key target is reducing payment friction and lowering transaction costs for both public-sector transfers and private-sector commerce.

According to Kim Dong-sub, who leads the Bank of Korea’s digital currency planning team, participating banks are actively securing real-world use cases involving:

large businesses

small merchants with high public relevance

merchants facing heavy payment fee burdens

The BOK sees deposit tokens as a possible lower-cost alternative to existing payment rails, especially for businesses that currently absorb substantial credit card processing fees.

That cost-reduction angle is becoming central to South Korea’s digital won narrative, helping distinguish the project from CBDC pilots that have struggled to move beyond technical demonstrations.

New use cases include peer-to-peer transfers and AI agent payments

Phase two also expands the functional scope of the pilot.

According to the reports, peer-to-peer transfers — which proved difficult in phase one — will now be enabled in the new tests.

That is a notable development because peer-to-peer functionality is a foundational requirement for any digital payment system that aims to move beyond closed-loop institutional experiments.

The Bank of Korea also said it is exploring digital currency payments for AI agents, or autonomous software systems that can search for and purchase goods and services on behalf of users.

If pursued further, that would position South Korea’s pilot as one of the more forward-looking public-sector digital currency programs globally, linking tokenized money infrastructure not only to subsidies and merchant payments, but also to machine-driven commerce.

Government targets broader treasury digitization by 2030

The subsidy pilot appears to be part of a longer-term fiscal modernization agenda.

Deputy Prime Minister Koo Yun-cheol said the government aims to convert one-quarter of all state fund disbursements to digital currency by 2030, describing the initiative as a starting point for innovation in fiscal execution.

That suggests South Korea is not treating the pilot as a one-off technology trial, but as an early stage in a broader redesign of how public funds are distributed and reconciled.

If successful, such a model could improve transparency in subsidy flows settlement speed and auditability of public spending. It would also prevent improper fund receipt and improve operational efficiency across government disbursement programs.

For blockchain infrastructure providers and policymakers alike, this is where tokenized money may begin to show more measurable value: not in speculative trading, but in public-sector payment operations.

Stablecoin policy tensions remain in the background

The start of phase two also comes as South Korea’s Digital Asset Basic Act (DABA) remains delayed due to disagreements among regulators over stablecoin issuance.

A central unresolved question is which authority should have the legal right to oversee or authorize KRW-pegged stablecoins.

That debate matters because South Korea’s deposit token framework may increasingly be viewed as a regulated alternative to privately issued won stablecoins.

In effect, the country is testing whether bank-issued tokenized deposits backed by central bank settlement infrastructure can deliver many of the benefits associated with stablecoins — programmability, faster settlement, lower transaction costs, and broader digital interoperability — without ceding monetary control to private issuers.

That dynamic could become more important as policymakers across Asia weigh how to balance innovation with monetary sovereignty.

Why this matters

For the digital won project, the importance of this latest phase lies less in the idea of launching a nationwide retail CBDC and more in the fact that it is being connected to real government spending. By linking Project Hangang to subsidy disbursements, merchant payments and expanded transfer functionality, South Korea is moving closer to showing how tokenized money might work inside everyday financial and public-sector infrastructure.

If the EV charging subsidy pilot proceeds as planned, it could become one of the clearest real-world examples yet of blockchain-based deposit tokens being used in live fiscal execution — a milestone that would give the global CBDC debate a more practical and measurable reference point.