South Korea formally launched the second phase of its blockchain payment pilot in March 2026, deploying bank-issued digital tokens to disburse government grants and subsidies across nine commercial banks. The programme, known as Project Hangang, represents the most concrete step yet in the country's push to route 25 percent of all state fund disbursements through digital currency infrastructure by 2030, a target equivalent to roughly 110 trillion won (approximately $73 billion USD) per year.

The first live transaction under Phase 2 is a 30 billion won (about $20 million USD) allocation to support construction of mid-speed electric vehicle charging facilities, administered by the Ministry of Climate, Energy, and Environment. Rather than receiving standard bank transfers, qualifying businesses are set to receive programmable deposit tokens: blockchain-recorded digital instruments that carry smart-contract-enforced spending restrictions and time limits to prevent misuse. An MOU formalising the arrangement was signed on March 24 at Government Complex Seoul by Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol, Minister of Climate, Energy, and Environment Kim Sung-hwan, and Bank of Korea Governor Rhee Chang-yong.

What deposit tokens are, and why they differ from a CBDC

Deposit tokens are not central bank digital currency. They represent a depositor's existing claim against a commercial bank, recorded on a distributed ledger instead of a traditional database. That distinction matters operationally: the depositor's claim remains with the bank, not with the central government, which means the system does not pull liquidity away from the banking sector the way a retail CBDC might. South Korea's design layers these bank-issued tokens on top of a wholesale settlement layer operated by the Bank of Korea, creating a hybrid structure that preserves commercial bank intermediation while adding programmability and auditability. The nine participating institutions include KB Financial Group, Shinhan, Woori, Hana, BNK Gyeongnam Bank, and iM Bank.

The underlying permissioned ledger settles transactions in under three seconds and supports offline payments and selective-disclosure privacy, a mechanism that maintains audit trails while protecting transaction data confidentiality between counterparties. Applications from businesses seeking EV charging grants open in May 2026, with participant selection in June and large-scale transaction testing scheduled for the second half of the year.

A programme that nearly did not survive

Phase 1 of Project Hangang ran from October 2023 through August 2025 and processed 114,880 transactions across 81,000 digital wallets, with individual holdings capped at one million won (roughly $666). Test cases covered Seoul youth culture passes, Busan university scholarships, and Daegu library vouchers. Participating banks spent approximately 35 billion won (about $23 million USD) on that phase.

The programme came close to cancellation after South Korea's new administration took office in June 2025 and redirected focus toward private-sector stablecoins, restructuring the BOK's CBDC team in the process. BOK Governor Rhee Chang-yong reportedly visited bank executives personally to retain their participation. The project was revived by September 2025 after the government identified grant disbursement as a use case large enough to justify the infrastructure investment.

"The CBDC will boost efficiency in the distribution of funds while reducing management and distribution costs," the Bank of Korea stated in January 2026. Kim Dong-sub, head of the BOK's digital currency planning team, said in March that "participating banks are actively securing diverse use cases, such as large businesses and small merchants with high public relevance." Lee Chang-kwon, head of KB Financial Group's future strategy division, signalled private-sector commitment on April 7, stating: "We will do our utmost to deliver tangible results in digital currency, with reliability and stability as our top priorities."

Regional stakes and developer implications

South Korea is not acting alone. Hong Kong has issued HK$16.8 billion (approximately $2.15 billion USD) in tokenised green bonds and has a live tokenised deposit pilot running with HSBC, Standard Chartered, BlackRock, and Franklin Templeton. Singapore operationalised its Digital Token Service Provider licensing regime in June 2025, with DBS, OCBC, and UOB already using wholesale digital currency for interbank overnight lending. Asia Pacific is projected to record the fastest growth rate in the global tokenisation market through 2035, at a compound annual rate of 20 percent.

For developers, the BOK has disclosed that it tested the Hangang platform across multiple blockchain environments including Ethereum and Avalanche, and ran testnet simulations of autonomous AI agent transactions using Coinbase's x402 protocol. The BOK has stated publicly that it intends to support digital currency payments by AI agents, which opens a notable integration surface for agentic finance applications. A separate partnership between Ripple and Kyobo Life Insurance, announced April 15, will settle South Korea's first tokenised government bonds, extending the tokenisation layer beyond the BOK-led system.

The model also has direct relevance for governments in South Asia and Sub-Saharan Africa that face chronic subsidy leakage and beneficiary fraud. Programmable spending restrictions and on-chain audit trails address well-documented failures in programmes such as India's Direct Benefit Transfer system, Pakistan's Ehsaas programme, Kenya's Hunger Safety Net Programme, and Ghana's LEAP scheme. South Korea's pilot, if it scales to the 110 trillion won target, would become the most ambitious government blockchain integration programme globally and a practical reference point for IMF and World Bank discussions on digital public infrastructure.

South Korea must still amend the Bank of Korea Act and the National Treasury Act by the end of 2026 to establish formal legal authority for blockchain-based payment and settlement. The ruling Democratic Party submitted a comprehensive Digital Asset Basic Act proposal on April 8, covering licensing requirements, stablecoin capital thresholds, and a new digital asset policy committee. The bill's legislative prospects are complicated by an unresolved jurisdictional dispute between the Bank of Korea, which favours restricting stablecoin issuance to banks, and the Financial Services Commission, which favours a broader framework that includes fintech firms. The active regulatory baseline governing digital asset participants is the Virtual Asset User Protection Act, which took effect on July 19, 2024, and provides the statutory foundation against which the new bill would be layered. Separately, the BOK has proposed using the Hangang Platform as a backup chain and reserve system for private KRW-pegged stablecoins; Toss, operated by Viva Republica and serving 30 million users, is among the prospective stablecoin issuers, with a reported target of 700,000 payment terminals by 2027. The BOK has described its digital currency as "an intermediate stage between a CBDC and stablecoins," a framing that reflects both the technical architecture and the political constraints the programme has navigated to reach this point.