South Korea Initiates Second Phase of Digital Won Pilot with Banks

South Korea's central bank has announced the commencement of the second phase of its digital won pilot, involving nine commercial banks. According to Odaily, the pilot will test the application of bank-issued, central bank-backed deposit tokens in real-world scenarios, including government subsidy distribution and peer-to-peer payments. Two new banks, Kyongnam Bank and iM Bank, have joined the existing seven banks for extensive testing. Kim Dong-sub, head of the digital currency planning team at the Bank of Korea, stated that the pilot focuses on merchants and businesses with high public relevance and transaction fees, exploring the potential of digital currency payments to significantly reduce transaction costs. Phase 2 will also support peer-to-peer transfers, which were challenging in previous stages. Additionally, the Bank of Korea plans to start distributing government subsidies via digital currency in the first half of this year, with initial applications potentially including subsidies for electric vehicle charging infrastructure. The central bank is also exploring the use of AI agents to purchase goods and services using the digital won. The pilot launch coincides with the delay of South Korea's Digital Asset Basic Act (DABA) due to disagreements among regulatory bodies over stablecoin issuance rights, particularly concerning who has the authority to issue stablecoins pegged to the won.