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 2026 in Sejong City, using blockchain technology to replace credit cards used in the public-sector system. The move aims to strengthen fund supervision through programmable features and reduce merchants’ processing fees.

South Korea launches a deposit token pilot, targeting a full-scale transformation in 2026

The South Korean government is actively promoting the digital transformation of the national public finance system. The Ministry of Economy and Finance (MOEF) recently announced that it will formally launch a blockchain technology pilot program and use “Tokenized Deposits” to pay for daily operating expenses of government agencies.

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

South Korea had previously accumulated relevant technical experience. For example, in March of this year, it worked with the Ministry of Environment and the Bank of Korea to conduct deposit token trials for electric vehicle charging subsidies. This pilot will expand the scope to cover the government’s daily administrative expenditures. This symbolizes that South Korea is officially moving from single-purpose subsidy disbursement to a comprehensive, digitized public finance management industry.

The Ministry of Economy and Finance said that choosing Sejong City as the starting point is because of the city’s special status as an administrative hub, which helps collect usage data from each ministry and lays a solid foundation for subsequent nationwide promotion.

Programmable features strengthen supervision, eliminate audit blind spots, and ease burdens on small merchants

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

In addition to improving internal management efficiency, the system will also have a positive impact on the private business environment. The de-intermediated settlement structure removes the involvement of traditional international card networks such as Visa or Mastercard. This means that merchants that previously had to bear transaction fees of about 1,000/10 to 30/10 (1% to 3%) will see a substantial reduction.

The Ministry of Economy and Finance emphasized that this payment architecture with no middlemen can directly reduce the operating pressure on small enterprises and merchants that cooperate 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.

The central bank and commercial banks join forces to build a digital currency ecosystem centered on bank-issued deposits

In terms of technical definition, deposit tokens are regarded as the digital representation of bank deposits on the blockchain. They are fundamentally different from general stablecoins: deposit tokens remain bank liabilities and are strictly regulated under the current financial system.

In a written response to the National Assembly, South Korea’s central bank governor nominee Shin Hyun-song (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 pathway built on trust must be established.

Image source: Bloomberg South Korea’s central bank governor nominee Shin Hyun-song (신현송)

Currently, South Korea’s financial industry has already begun an intense infrastructure competition:

• KB Financial Group and Shinhan (Shinhan) Financial Group are accelerating the construction of related infrastructure. KB Financial has already carried out a technical collaboration with Circle to explore diverse application scenarios for a Korean won stablecoin.
• Shinhan and Hana Financial are also considering partnering with Samsung Electronics, integrating related 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 banking side will be responsible for issuing deposit tokens, while final settlement will be carried out through the wholesale CBDC issued by the Bank of Korea, forming a stable and efficient digital payments loop.

Regulatory sandbox removes legal hurdles; the Digital Asset Basic Act leads fiscal modernization

The South Korean government has set an ambitious vision to shift one quarter of the national treasury’s fund execution to digital currencies by 2030. To achieve this goal, the government is gradually improving the regulatory environment. In addition to using the regulatory sandbox to resolve conflicts in existing laws that mandate the 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 a clear legal basis for the digital asset industry.

Although the legislative process is affected by changes in the political and economic environment, relevant ministries and agencies have planned to restart legislative discussions after the June 3 local elections, led by the ruling party. With the Sejong City pilot program moving forward, the government will continue to collect key data and evaluate the practical effectiveness of deposit tokens in improving fiscal transparency and enabling fund tracking.

If the Sejong City model is verified as successful, it will be rolled out nationwide in the future, ushering in a brand-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.