Bank of Korea Gears Up for Three-Month “Hangang” CBDC Trial with 100,000 Consumers

• Bank of Korea to test CBDC “Hangang” for everyday transactions in April.
• Seven banks will issue deposit tokens for use at supermarkets and online stores.
• Trial aims to assess CBDC’s efficiency in reducing transaction fees and intermediaries.

The Bank of Korea (BOK) will soon begin a three-month trial program for its central bank digital currency (CBDC), dubbed “Hangang.” Scheduled to start in April, this test aims to figure out if a CBDC can actually work for everyday transactions. 

The trial will run until June and will include 100,000 everyday consumers along with seven major commercial banks. The focus of the project will be on using the CBDC for common purchases at places like supermarkets, online shopping sites, and convenience stores.

The BOK has teamed up with seven key banks for this test: KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, NH Nonghyup Bank, IBK Industrial Bank of Korea, and BNK Busan Bank. These banks will issue what are called deposit tokens to a select group of participants, who can then use these tokens to pay at various stores, including popular chains like 7-Eleven and Kyobo Book Centre.

What Are the Limits on These Digital Tokens?

The trial will set a cap of 1 million won (around $689) for the amount of deposit tokens any single person can hold. There will also be a maximum transaction limit of 5 million won during the entire testing period. 

The BOK is looking to see if a CBDC can simplify the payment process by cutting out some of the middlemen and lowering transaction fees. Payments made with these deposit tokens will be processed using QR codes, offering merchants real-time settlement.

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The main goal of this test is to determine if CBDCs can be a practical alternative to the current system, where transactions rely on bank reserves. By issuing these CBDCs, the BOK and the participating banks will be examining the advantages of faster, more efficient payments that also come with lower transaction costs.

Beyond that, the Bank of Korea is also interested in finding out if a CBDC could potentially replace existing payment systems we use every day, like credit cards, by offering a more direct way for funds to move between shoppers and businesses.

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This upcoming trial comes after four years of research by the BOK into how a CBDC might work. During that time, their focus has been more on the technical side of things rather than real-world uses. This pilot program marks the first time South Korea will actually test a CBDC in everyday scenarios.