The Bank of Korea is reportedly planning to launch the second phase of Project Hangang, its wholesale central bank digital currency (CBDC) pilot, as soon as September 2026, according to a report from Yonhap News. This next stage marks a critical step toward the commercialization of a CBDC in South Korea, building on the success of the first phase conducted from April to June 2025.
Expanding the Pilot: More Banks and Features
The second phase will see the number of participating banks expand from seven to nine, with regional lenders Kyongnam Bank and iM Bank joining the existing group. The expansion is designed to test the scalability and interoperability of the system across a broader financial ecosystem. In addition to the increased bank participation, the pilot will introduce new payment features, including peer-to-peer transfers, biometric authentication, and automated deposit token capabilities.
One of the most significant developments is the testing of government subsidy disbursements through tokenized bank deposits. This feature could streamline the distribution of welfare payments, reducing fraud and administrative overhead while ensuring that funds are used for their intended purposes. The use of tokenized deposits for subsidies represents a practical application of blockchain technology in public finance.
Background: Project Hangang and the CBDC Landscape
Project Hangang uses a blockchain-based wholesale CBDC issued by the Bank of Korea as the settlement asset for deposit tokens issued by commercial banks. Consumers can then use these bank-issued tokens for everyday payments. This model is similar to a two-tier CBDC system, where the central bank issues the wholesale CBDC to commercial banks, which in turn issue retail deposit tokens to consumers. South Korea has been exploring CBDCs for several years, with the first phase of Project Hangang launched in 2024 but implemented in 2025. The first phase focused on building the payment infrastructure and attracting users. It saw approximately 81,000 participants complete 114,880 transactions using deposit tokens, demonstrating the viability of the concept.
The second phase aims to move beyond proof-of-concept toward actual commercialization. This includes not only expanding the participant base but also enhancing the functionality of the system. For instance, the addition of peer-to-peer transfers could allow users to send money directly to each other without the need for traditional banking intermediaries, potentially lowering costs and increasing speed. Biometric authentication, such as fingerprint or facial recognition, would improve security and ease of use.
Global Context: CBDCs Around the World
South Korea is not alone in its pursuit of a CBDC. Central banks around the world are exploring or developing digital currencies. China has already launched a pilot of its digital yuan (e-CNY), which has been tested in several cities and used for everything from public transport to retail transactions. The European Central Bank is advancing the digital euro project, while the Federal Reserve in the United States has been researching a potential digital dollar but has not yet committed to a pilot.
In Asia, several other countries are also making progress. Japan has been conducting experiments with a digital yen, and the Monetary Authority of Singapore has been exploring wholesale CBDCs through its Project Ubin. The Bank of Thailand and the Hong Kong Monetary Authority have also collaborated on cross-border CBDC projects. The common goal among these initiatives is to modernize payment systems, enhance financial inclusion, and maintain monetary sovereignty in an increasingly digital economy.
Technical Insights: Wholesale CBDC vs. Retail CBDC
Project Hangang is a wholesale CBDC, meaning it is designed for use by financial institutions rather than the general public. The wholesale CBDC is used as a settlement asset for interbank transactions and for issuing deposit tokens to consumers. This approach contrasts with retail CBDCs, which are intended for direct use by individuals and businesses. Korea has yet to announce plans for a retail CBDC, but the wholesale model could serve as a backbone for future retail implementations.
The use of tokenized bank deposits is a crucial aspect of the project. Tokenized deposits are digital representations of commercial bank money on a blockchain or distributed ledger. They combine the stability of traditional bank deposits with the programmability and efficiency of blockchain technology. This allows for automated payments, conditional transfers, and integration with smart contracts. The Bank of Korea’s approach mirrors similar experiments by the Bank for International Settlements (BIS) and other central banks.
Potential Implications for the Financial System
If successful, the second phase of Project Hangang could have far-reaching implications for South Korea’s financial system. It could reduce the cost and time of payment transactions, improve the traceability of funds, and enable new forms of programmable money. For instance, government subsidies could be programmed to expire if not used within a certain period, or to be spent only on specific categories of goods and services. This could reduce waste and increase the effectiveness of fiscal policy.
Moreover, the expansion to nine banks, including regional lenders, suggests that the Bank of Korea is considering the needs of smaller institutions and their customers. Regional banks often play a vital role in local economies, and their inclusion could help distribute the benefits of CBDC more widely. The peer-to-peer transfer feature could also promote financial inclusion by giving the unbanked or underbanked access to digital payments without the need for a traditional bank account.
However, there are also challenges. Privacy concerns are paramount, as a CBDC could allow the central bank to track all transactions. The Bank of Korea has stated that it will ensure that privacy protections are built into the design, but the balance between privacy and anti-money laundering measures will remain a contentious issue. Interoperability with existing payment systems, such as credit cards and mobile wallets, is another hurdle.
Looking Forward: The Road to Commercialization
The second phase of Project Hangang is expected to last several months, after which the Bank of Korea will analyze the results and determine the next steps. If the pilot proves successful, South Korea could become one of the first advanced economies to launch a wholesale CBDC. The timeline for a full-scale rollout remains unclear, but the September 2026 launch date for the second phase indicates that progress is accelerating.
The project has already attracted the attention of other central banks and fintech companies. The use of tokenized deposits for government subsidies could provide a valuable test case for other countries exploring similar applications. In addition, the collaboration between the central bank and commercial banks demonstrates the potential for public-private partnerships in the digital currency space.
As the world moves toward a more digital financial future, South Korea’s Project Hangang stands out as a well-structured and ambitious initiative. The second phase will test not only the technology but also the regulatory framework and public acceptance of CBDCs. The results could shape the future of money not only in South Korea but around the globe.
Source:Cointelegraph News