South Korea to test CBDC backed deposit tokens for government expenses

South Korea has approved a pilot that will let public officials pay government operating expenses with blockchain based deposit tokens instead of physical government cards.
Summary

• South Korea has approved a pilot allowing public officials to pay selected government operating expenses with deposit tokens by scanning QR codes on smartphones.
• Six banks will participate in the trial, with transactions processed through blockchain infrastructure linked to the Bank of Korea's Project Hangang.
• Deposit tokens can be programmed to block purchases in restricted categories, while payments are settled immediately and recorded through the blockchain based system.
• The pilot expands the use of Project Hangang beyond consumer payments as South Korea tests deposit tokens for government spending.

According to The Chosun Daily, the Ministry of Science and ICT approved the project during the 45th ICT Regulatory Sandbox Review Committee meeting held on Sept. 21, with the ministry announcing the decision a day later.

The blockchain based government fund execution project was among nine cases granted regulatory exemptions by the committee. It will allow officials to make eligible payments by scanning QR codes on smartphones and using deposit tokens connected to the Bank of Korea's digital currency infrastructure.

Existing rules under South Korea's National Treasury Funds Management Act have limited payment methods for government office operating expenses to tools including government purchase cards and bank transfers. The sandbox exemption creates a route for digital currency to be tested without first changing the underlying law.

Six banks will participate in the government payment trial, including KB Kookmin Bank, NH NongHyup Bank, Shinhan Bank, Woori Bank, Industrial Bank of Korea and Hana Bank.

Deposit tokens will replace cards for selected government payments

Under the pilot, participating public officials will be able to use deposit tokens for expenses such as business promotion costs that would normally be settled through physical government cards.

The tokens form part of Project Hangang, the Bank of Korea's blockchain based digital money program. Consumers do not directly spend a retail CBDC under the system. Commercial banks issue deposit tokens representing bank deposits, while the Bank of Korea's wholesale central bank digital currency is used for settlement between financial institutions.

Transactions made with the tokens are processed through the blockchain based infrastructure, allowing payment and settlement to occur at the same time.

Programmable controls can be applied before a transaction takes place. Items or business categories that are not permitted under government expense rules can be designated in advance, preventing the deposit token from being used for restricted purchases.

The Ministry of Science and ICT expects the structure to make government spending easier to verify because payment records are processed through the blockchain based system. Officials expect lower payment fees and immediate settlement to reduce costs for small businesses that receive the payments.

South Korea has spent more than a year testing the underlying technology before bringing it into government spending.

The first phase of Project Hangang began in April 2025 and allowed up to 100,000 people to use deposit tokens issued by participating banks. Users could convert funds held in bank accounts into tokens through banking applications and make QR code payments at approved merchants.

Crypto.news previously reported that the second phase of Project Hangang began in March 2026 with nine banks, expanding the system beyond the original seven institutions. Government subsidy payments became one of the live use cases, while the upgraded system introduced person to person wallet transfers, biometric payment approvals and automatic wallet top ups.

South Korea is extending deposit tokens into everyday payments

Government spending is being tested as South Korean agencies build infrastructure that could support deposit tokens across existing commercial payment networks.

The Ministry of Science and ICT and the Korea Internet & Security Agency launched a 9.6 billion won payment project in July to connect Project Hangang with payment systems already used by merchants and consumers.

Nine commercial banks, eight payment companies and two large merchants joined the program, which is led by the Korea Financial Telecommunications and Clearings Institute.

Instead of requiring merchants to replace their existing payment terminals, the project is designed to connect deposit token transactions with current payment infrastructure. Participating banks can provide token wallets while merchants continue processing transactions through systems already installed at their businesses.

Lower processing costs for small businesses are one of the areas being examined under the program. The new government expense pilot will test a similar feature in the public sector, where participating merchants would receive funds immediately when an eligible payment is completed.

The Bank of Korea and participating lenders have separately discussed keeping deposit tokens in continuous operation while building the systems required for possible commercial use. Plans outlined in June included more merchants, person to person transfers and services developed individually by participating banks.

Banks have said expansion requires more than extending the original pilot infrastructure. A larger system would need anti money laundering controls, fraud detection, suspicious transaction reporting and other operational tools before deposit tokens could be used on a larger scale.

The deposit token expansion plans have included business payments and government related transactions alongside consumer transfers.

Project Hangang keeps CBDC settlement behind bank issued tokens

Project Hangang uses a two layer structure that separates central bank settlement from the digital money consumers and businesses use for payments.

The Bank of Korea provides the wholesale CBDC layer for transactions between financial institutions. Commercial banks issue the deposit tokens used by customers, meaning consumers retain a claim connected to their commercial bank deposits instead of holding a direct retail claim on the central bank.

South Korean authorities have maintained that distinction as debate continues around CBDCs, deposit tokens and privately issued won stablecoins.

Project Hangang's second phase increased the number of participating banks from seven to nine. It has expanded the functions available to users while retaining the wholesale CBDC and commercial bank deposit token model.

The infrastructure has been tested outside domestic retail payments as well. In July, the Bank of Korea completed tokenized reserve transfer tests under the Bank for International Settlements led Project Agorá.

One domestic transaction involved NongHyup Bank and Shinhan Bank transferring 20 million won using tokenized central bank reserves. The test manually connected Project Hangang with the Project Agorá environment to examine how the domestic digital currency infrastructure could interact with a cross border settlement platform.

KB Kookmin Bank separately completed a deposit token payment test with Japan's MUFG Bank using a yen based settlement transaction.

Regulatory sandbox clears other digital services

The ICT Regulatory Sandbox Review Committee approved several other projects during the Sept. 21 meeting alongside the government deposit token trial.

One exemption concerns digital communications during urban redevelopment projects. Notices for inaugural meetings required to establish redevelopment associations have traditionally been sent by registered mail.

During the testing period, participating associations will be permitted to send the notices electronically to members who have agreed to receive digital documents.

KT received a regulatory exemption for a separate service covering documents such as billing statements. The telecommunications company will be allowed to send documents directly to mobile devices through its certified electronic document delivery service instead of relying on postal delivery.

The committee changed the regulatory status of MediaScope's mobile connected open singing booth service from a regulatory exemption to a temporary permit.

MediaScope installs small open singing booths at public facilities including shopping malls, movie theaters and transportation terminals. The temporary permit will allow the service to continue operating while the Ministry of Culture, Sports and Tourism reviews changes to the relevant regulations.