Bank of Korea says only banks can hold Project Hangang's digital currency

For the bank that issues it, a Project Hangang deposit token is a deposit in a new format. Kim said the tokens cannot be legal tender and have the same legal and institutional attributes as existing deposits, while a retail CBDC could be granted legal tender status with mandatory acceptance ^[14]. Under the central bank's current research rules, a bank puts 7 won into reserves for every 100 won of tokens it issues, and deposit insurance applies if the issuing bank fails ^[15]. A bank with 1 trillion won of tokens outstanding would hold 70 billion won against them ^[17].

Kim's case for keeping the central bank out of retail starts with what a public coin would change. He listed the transmission of monetary policy, credit supply mechanisms and financial stability ^[16]. He added operating choices he called "a pile of issues to consider," among them "whether to grant a CBDC the same level of anonymity as cash, whether to set holding or usage limits per individual, and whether to pay interest" ^[10]. I think credit supply is the item that matters most to banks. A coin that households could hold at the central bank would compete for the same balances banks lend from. The other reading is that weak demand settles the question on its own. According to the central bank, in the early 2000s Korea became the first country where account-to-account transfers ran in real time at any hour of the day ^[11], and Kim wrote that even a retail CBDC would likely see limited use ^[12].

Kim published the post on the 8th to answer a political problem: concern that the project was groundwork for a retail coin ^{[2] [1]}. Since the first real-transaction test, eight petitions opposing a CBDC have been filed with the National Assembly, with 420,000 signatures through August ^[6]. That is about 52,500 per petition ^[18]. Critics say a central bank coin in public hands could mean excessive tracking of individual fund flows ^[7], and a bill banning a CBDC has passed in the United States ^[8]. Kim's answer turns on who can hold what. "Unlike a retail CBDC, the deposit tokens and wholesale digital currency in Project Hangang cannot be held by individuals or non-bank companies, only by banks," he said. "That rules out from the start any room for controversy or risk related to personal data and privacy." ^[19]

That answer does not fit easily with the rest of the description. Under Project Hangang, consumers use the deposit tokens to make payments ^[3]. Kim ended his post by predicting that once people "open a digital wallet and make payments themselves," the misunderstandings will be cleared up ^[20]. The post as reported does not explain how a consumer wallet spends an instrument that individuals cannot hold. If the bank holds the token and the wallet only instructs it, the privacy protection Kim describes comes from the bank's handling of customer data.

Kim also said the central bank is not conducting research and development on a retail CBDC ^[9]. On his account, its effort goes into the wholesale layer. The first phase ran from April to June last year ^[4]. The second, under way since the second half of this year, extends to paying out government funds, and a Ministry of Climate, Energy and Environment subsidy program for medium-speed EV charging facilities already uses it ^[5]. The bank-only line could break in a few ways. A later phase could let fintech firms hold tokens directly, the central bank could clarify that individuals do hold tokens in their wallets, or the petitions could produce a political response that stops the pilot before it grows. In my view, the Bank of Korea is building an interbank settlement system that keeps households off its own balance sheet. Kim called it "a pilot project to build token-based future financial infrastructure, unrelated to a retail CBDC" ^[13].