South Korea launches deposit token pilot! Aiming to fully replace government-issued credit cards, and also help merchants save on transaction fees.

South Korea plans to launch a deposit token pilot in Sejong City in 2026, using blockchain technology to replace government-issued credit cards. The move aims to strengthen fund regulation through programmable features and reduce merchant transaction fees.

South Korea initiates deposit token pilot, targeting full transformation by 2026

The South Korean government is actively promoting the digital transformation of the national financial system. The Ministry of Economy and Finance (MOEF) recently announced the official launch of a blockchain technology pilot program, adopting “Tokenized Deposits” to pay for daily government operations.

The plan is scheduled to be implemented in the fourth quarter of 2026 in Sejong City, the administrative capital, with the goal of fully replacing the current credit card and signature card systems used in government operations. This plan has been included in the 2026 Regulatory Sandbox project, where the government temporarily waives existing payment regulations to test the potential of distributed ledger technology (DLT) in public financial infrastructure in a controlled environment.

South Korea has previously accumulated relevant technical experience, such as in March this year, when it collaborated with the Ministry of Environment and the Bank of Korea to pilot deposit tokens for electric vehicle charging subsidies. This pilot will expand to cover daily administrative expenses, symbolizing South Korea’s transition from single-purpose subsidy disbursements to a comprehensive digital fiscal management industry.

The Ministry of Economy and Finance stated that choosing Sejong City as the starting point is due to its special status as the administrative center, which facilitates data collection from various ministries and provides a solid foundation for nationwide promotion.

Programmable features enhance regulation, eliminate audit blind spots, and ease burdens on small businesses

Current government fund execution heavily relies on government-issued procurement cards, with a post-transaction reporting review model. The Ministry of Economy and Finance pointed out that traditional processes often create additional administrative burdens and audit difficulties when handling expenses during late-night hours or non-business days. Deposit tokens possess “programmable” features, allowing authorities to preset usage parameters, such as restricting spending to office hours or limiting to specific industries like transportation or office supplies. This mechanism can prevent misuse of public funds at the source, significantly improve transparency, and effectively reduce the complexity of subsequent manual audits.

In addition to internal management efficiency, this system also positively impacts the private commercial environment. Decentralized settlement structures remove the involvement of traditional international card networks like Visa or Mastercard, meaning that merchants who previously bore transaction fees of about 0.1% to 0.3% will see substantial reductions.

The Ministry of Economy and Finance emphasizes that this peer-to-peer payment architecture can directly reduce operational pressures on small businesses and merchants working with the government, achieving a win-win for public finance and local economies. In the future, the government plans to integrate this automated reporting and payment mechanism into more public service scenarios.

Central banks and commercial banks collaborate to build a digital currency ecosystem centered on bank-issued tokens

Technically, deposit tokens are viewed as digital representations of bank deposits on the blockchain. They are fundamentally different from typical stablecoins; deposit tokens remain liabilities of banks and are strictly regulated within the current financial system.

Nominee for the Governor of the Bank of Korea Shin Hyun-sung (신현송) explicitly stated in a written response to the National Assembly that CBDC (Central Bank Digital Currency) and deposit tokens issued by commercial banks are the “core” of the future digital currency ecosystem. He believes that private virtual assets have limitations in replacing fiat currency, so a trust-based official digital asset pathway must be established.

Image source: Bloomberg South Korea’s Bank of Korea Governor nominee Shin Hyun-sung (신현송)

The South Korean financial sector is already engaged in fierce infrastructure competition:

• KB Financial Group and Shinhan Financial Group are accelerating infrastructure development, with KB Financial collaborating with Circle to explore diverse applications of the Korean won stablecoin.
• Shinhan and Hana Financial are discussing partnerships with Samsung Electronics to integrate related payment functions into the Samsung Pay platform.

The active participation of these private financial institutions reflects high market interest in the government’s digital transformation policies. According to the plan, banks will issue deposit tokens, with final settlement conducted via the wholesale CBDC issued by the Bank of Korea, forming a stable and efficient digital payment cycle.

Regulatory sandbox removes legal barriers, digital asset basic law leads financial modernization

The South Korean government has set an ambitious vision to shift a quarter of the national treasury’s fund execution to digital currency by 2030. To achieve this, the government is gradually improving the regulatory environment. Besides using the sandbox to resolve conflicts caused by the current legal requirement for physical plastic cards, it is also actively promoting the Digital Asset Basic Act. This legislation will comprehensively regulate stablecoins, real-world asset tokenization (RWA), and crypto exchange-traded funds (ETFs), providing clear legal frameworks for the digital asset industry.

Although the legislative process is affected by political and economic changes, relevant departments have planned to restart legislative discussions after the June 3 local elections, led by the ruling party. As the Sejong City pilot progresses, the government will continue collecting key data to evaluate the effectiveness of deposit tokens in enhancing fiscal transparency and fund tracking.

If the Sejong City model proves successful, it will be expanded nationwide, opening a new digital era for government budget management and national financial infrastructure. This reform is not only a change in payment methods but also a comprehensive optimization of the country’s financial governance efficiency.