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 credit cards used in the government administrative system. The move aims to strengthen fund oversight through programmability and reduce merchant transaction fees.

South Korea initiates a deposit token pilot, targeting a 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 that it will officially launch a blockchain technology pilot program, adopting “Tokenized Deposits” to pay for daily operational expenses of government agencies.

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

The South Korean government has previously accumulated relevant technical experience. For example, in March this year, it collaborated with the Ministry of Environment and the Bank of Korea (Bank of Korea) to pilot deposit tokens for electric vehicle charging subsidies. This pilot will expand to cover daily administrative spending across government, symbolizing South Korea’s shift from issuing single-purpose subsidies to entering a comprehensive digital fiscal management industry.

The Ministry of Economy and Finance stated that choosing Sejong City as the starting point is because of the city’s special status as an administrative hub, which will help collect usage data from relevant ministries and provide a solid foundation for nationwide rollout afterward.

Programmable features strengthen oversight, eliminate audit blind spots, and ease burdens on small businesses

The current execution of public funds relies heavily on procurement cards issued by the state, and adopts an audit model in which reports are submitted after the transactions. The Ministry of Economy and Finance noted that in traditional processes, handling expenditures during late-night hours or on non-business days often creates additional administrative burdens and auditing difficulties. Deposit tokens have “programmable” features, allowing competent authorities to preset fund usage parameters—such as restricting spending to business hours, or specifying limited industry categories like transportation or office supplies. This mechanism can prevent misuse of public funds at the source, significantly improve transparency in government spending, and effectively reduce the complexity of subsequent manual audits.

In addition to improving internal management efficiency, the system also has a positive impact on the private business environment. A decentralized settlement structure removes the participation of traditional international card networks such as Visa or Mastercard, meaning that transaction fees that merchants previously had to bear—approximately 1,000th to 10 to 30 of the amount—will be substantially reduced.

The Ministry of Economy and Finance emphasized that this intermediary-free payment structure can directly reduce operating pressure 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 bank and commercial banks team up to lay out a digital currency ecosystem centered on bank issuance

In terms of technical definition, deposit tokens are considered the digital representation of bank deposits on a blockchain. They are fundamentally different from typical stablecoins. Deposit tokens remain bank liabilities and are strictly regulated under the current financial system.

In a written response, the Bank of Korea governor nominee Shin Hyun-sung (신현송) clearly stated that the central bank digital currency (CBDC) 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 an official digital asset path built on trust must be established.

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

Currently, South Korea’s financial sector has already entered a phase of intense infrastructure competition:

• KB Financial Group and Shinhan (Shinhan) Financial Group are accelerating the construction of related facilities. KB Financial has already carried out technical cooperation with Circle to explore diversified use cases for a Korean won stablecoin.
• Shinhan and Hana (Hana) Financial are considering working with Samsung Electronics (Samsung Electronics) to integrate relevant payment functions into the Samsung Pay platform.

The active participation of these private financial institutions reflects the market’s high level of attention to the government’s digital transformation policies. According to the plan, the bank side will be responsible for issuing deposit tokens, while final settlement will be carried out via the wholesale CBDC issued by the Bank of Korea, forming a stable and efficient digital payment loop.

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

The South Korean government has set a grand vision to shift a quarter of treasury funds’ execution to digital currency before 2030. To achieve this goal, the government is gradually improving the regulatory environment. In addition to using the regulatory sandbox to resolve conflicts in current laws that require mandatory use of physical plastic cards, it is also actively promoting the Digital Asset Basic Act. The bill will comprehensively regulate stablecoins, the tokenization of real-world assets (RWA), and crypto exchange-traded funds (ETFs), providing clear legal grounds for the digital asset industry.

Although the legislative process is influenced by changes in the political and economic environment, relevant authorities have planned to restart legislative discussions after the June 3 local elections, led by the ruling party. As the Sejong City pilot program advances, the government will continue to collect key data and evaluate the practical effectiveness of deposit tokens in enhancing fiscal transparency and tracking funds.

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