TL;DR:
- South Korea’s Ministry of Science and ICT imposes a regulatory test to digitize public spending through tokens based on controlled blockchain.
- KB Kookmin, NH NongHyup, Shinhan, Woori, IBK, and Hana Bank participate in issuing these digital debt instruments.
- Wholesale interbank settlement is centralized using the Bank of Korea’s CBDC through the so-called Project Hangang.
This Monday, South Korea’s Ministry of Science and ICT announced the implementation of a pilot plan to analyze the use of CBDC-backed deposit tokens in operational disbursements by government officials.
This measure, presented under the illusion of “innovation,” represents a further step toward consolidating a centralized and programmable state financial system, intrinsically opposed to the decentralized and libertarian nature of original cryptocurrencies like Bitcoin.
The initiative was authorized as one of nine special demonstration cases approved during the 45th meeting of the ICT Regulatory Sandbox Deliberation Committee.
Under this scheme, the public administration will be able to make payments linked to their job functions only by scanning a QR code with a mobile phone, without the need for traditional corporate plastics. This is not merely a technological update; in fact, it will facilitate absolute traceability and programmability of each monetary unit by the state issuer.
Six banking entities will participate in the test: KB Kookmin, NH NongHyup, Shinhan, Woori, IBK Industrial Bank of Korea, and Hana Bank. According to the official report, these institutions will issue the redeemable digital assets that public employees will use to cover authorized items, such as institutional promotion costs and representation expenses. Far from offering financial freedom, these tokens act as digital vouchers whose use is pre-approved and limited by the State.
Technical Architecture under Project Hangang: Two-Layer Control
The operational structure of this program is based on the technical framework of Project Hangang, jointly developed by the Bank of Korea and private banking. In this two-layer model, officials do not receive digital money from the central bank directly, but rather digital representations of conventional bank deposits managed on distributed ledgers.
Under this structure, the central bank holds absolute control while using commercial banks as intermediaries for the retail distribution of these control instruments.
Wholesale interbank settlement is executed through the central bank digital currency (CBDC). According to data from the Bank of Korea, this design allows commercial payment and final interbank settlement to occur simultaneously on the network, further centralizing the final settlement process in the hands of the State.
Under South Korea’s National Treasury Management Act, institutional disbursements must be managed exclusively through bank transfers or corporate credit cards. The inclusion of the program within the regulatory sandbox grants a temporary exception to validate the legal and technical viability of this digital format in state accounting, demonstrating how regulations adapt to facilitate state intervention tools.
The system incorporates programmable restrictions prior to the execution of each payment. According to information released by the Ministry of Science and ICT, smart contracts allow for the automatic blocking of merchants or business sectors not authorized for the public budget. This feature underscores the fundamental difference from true cryptocurrencies: while Bitcoin allows free use of value without censorship, these CBDC-backed tokens are designed to limit and direct spending according to guidelines set by the central authority.
The trial takes place in a setting of increasing legislative scrutiny regarding financial privacy in the Asian country. Past September 13, Jang Dong-hyuk, leader of the People Power Party, made public his rejection of a retail CBDC without legal safeguards to prevent state surveillance over individual spending. These concerns are valid, given that the underlying technology of CBDCs allows, by design, supervision of all transactions.
Faced with these objections, Bank of Korea technicians reiterated that Project Hangang maintains the intermediation of private commercial banking. However, this two-layer structure does not eliminate the central bank’s ability to access fund traceability at the wholesale settlement layer.
