South Korea to Scale Up Digital Won Pilot to 500,000 Users, Testing Programmable Tokens and Real Government Subsidies

South Korea is sharply expanding its central bank digital currency experiment, moving from a limited trial to a large-scale test that will include real government funds and new programmable features. The Bank of Korea (BOK) said Monday that the next stage of Project Hangang, its blockchain-based digital won initiative, will launch in September. The second phase will widen participation to nine commercial banks and as many as 500,000 users. Unlike earlier testing, the upcoming rollout will no longer rely solely on simulated value: the pilot will trial government subsidy payments using programmable tokens. Phase 1 ran from April to June 2025. Seven banks and about 12,000 merchants participated, generating 114,880 transactions. Reports cited roughly 81,000 wallets opened in earlier testing, but only about 42% of wallet holders used tokens for spending, highlighting weak engagement. The Human Rights Foundation's CBDC tracker estimates banks spent about 30–35 billion won building the infrastructure underpinning those results. BOK says Phase 2 is designed to mimic everyday banking activity and improve participation. New functions will include biometric (fingerprint) approvals, person-to-person wallet transfers, automatic top-ups from linked bank accounts, recurring auto-pay and interest payments, cash receipt issuance, and programmable deposit tokens aimed at testing government subsidy distribution. For the first time, government subsidies will be delivered through programmable tokens that can restrict spending to specific vendors, purposes, or time windows. A BOK official cited by Yonhap said Phase 2 is intended to "lay the groundwork for commercialization." Under the structure outlined by the central bank, BOK issues a wholesale CBDC used for inter-institution settlement. Commercial banks then mint deposit tokens—blockchain-based representations of customer deposits—that consumers and merchants use for payments. Kim Dong-seop, head of the BOK's Digital Currency Planning Team, described the approach as "a middle ground between a CBDC and a stablecoin." For consumers, programmable deposit tokens could eventually allow benefits to be paid directly into digital wallets rather than through vouchers or checks. For merchants, token-based payments may reduce interchange and card fees, potentially improving margins, particularly for high-volume retailers. The pilot will also assess whether programmable rules can lower fraud and audit costs by enforcing subsidy spending restrictions at the time of disbursement. The original seven participating banks—KB Kookmin, Shinhan, Hana, Woori, Nonghyup, Industrial Bank of Korea, and BNK Busan—will be joined by Gyeongnam Bank and iM Bank. The pilot will run on an open-ended basis. Project Hangang has gained momentum under new BOK Governor Shin Hyun-song, who made it a focal point of his first policy address after taking office in April 2026. The broader policy environment is also shifting. Hana Bank is reportedly working on a won-backed stablecoin pegged 1:1 to the won as Seoul debates stablecoin legislation. Separately, the Ministry of Economy and Finance has proposed revising a 76-year-old national asset law to classify cryptocurrencies as national assets, signaling wider regulatory changes. The same programmability that makes deposit tokens attractive for targeted government payments is also fueling civil liberties concerns. Restrictions tied to vendors, spending categories, or deadlines could extend beyond subsidies to include expirations, broader spending limits, or wallet freezes without the protections associated with cash. Because CBDC-related transactions are recorded on a ledger accessible to central banks and partners, activists argue the surveillance risk is structural and not unique to South Korea. Critics often point to China's digital yuan, where some stimulus payments have carried expiry dates—described by Beijing as anti-hoarding measures and criticized by others as coercive. Researchers have warned the e-CNY could set precedents for state-controlled financial surveillance. The United States has moved in the opposite direction. A four-year ban on CBDC issuance became law on July 11 when the 21st Century ROAD to Housing Act took effect without President Trump's signature. Phase 2 of Project Hangang raises the stakes with a much larger user base, real government funds, and programmable money that could reshape payments, benefit distribution, and merchant economics in South Korea. It also intensifies the debate over privacy and state control as more forms of money become enforceable by code. Policymakers, banks, merchants, privacy advocates, and other jurisdictions weighing CBDCs are expected to watch the results closely.