South Korea's central bank's digital currency plan raises warnings over privacy risks

South Korea's largest opposition party opposes: No introduction of central bank digital currency without legal protection

The People Power Party, a competitor of the Common Democratic Party, the main political party other than South Korea's ruling party, has made it clear that it firmly opposes the introduction of central bank digital currency (CBDC) until legal safeguards such as privacy protection, spending restrictions and consumer choice are improved. Party leader Jang Dong-hyeok has publicly questioned transaction tracking mechanisms, spending controls, validity limits and the protection of currency options.

At the same time, the Bank of Korea is promoting the second phase of the "Project Hangang" nationwide. The project aims to conduct infrastructure testing using approved central bank currency under the tokenized customer deposits of commercial banks. The second phase will expand the number of participating banks from seven to nine, and add a point-to-point deposit and token transfer function. Relevant information from the Bank of Korea clearly points out that the "Hanjiang Project" is essentially different from the retail central bank digital currency system issued to the public.

Lag legislation raises concerns about privacy and control

According to a report by Digital Asset on September 14, Jang Dong-hyuk released this position statement on Facebook the day before. At this time, the Bank of Korea is accelerating the second phase of the "Han River Project", which is the digital currency and tokenized deposit test plan.

"I strongly oppose the introduction of CBDC when laws, regulations and institutional guarantees have not yet been fully established and the public cannot feel safe." Zhang Donghe said.

The People's Power Party is currently in opposition, facing the Common Democratic Party government led by President Lee Zee-ming. Chang Dong-hyuk took over the party in August 2025 after losing the election. He pointed out that the convenience and efficiency of payments are no reason to rush ahead before lawmakers address privacy and personal control issues. He asked how deeply authorities track citizens 'transactions and whether digital currencies would restrict the use of funds.

His remarks raised concerns that programmable currencies could come with expiration dates or other conditions. Jang Dong-hyuk asked whether people could still retain the right to choose the preferred currency form if South Korea introduced the central bank digital currency. "While some people believe that CBDC is an emerging technology that can improve payment convenience and efficiency, we should not act rashly simply because of its convenience." he said.

It is worth noting that Chang Dong-hyuk's statement did not cite any evidence that the Bank of Korea had proposed setting expiration dates for all consumer payments or attempted to eliminate cash. He defines these issues as safeguards that policymakers must address before formal adoption.

South Korea's digital asset agenda and regulatory differences

The People's Power Party has previously opposed parts of the government's digital asset agenda. According to reports, the party opposes provisions in the proposed Basic Law on Digital Assets on major shareholder ownership restrictions and advocates suspending or abolishing cryptocurrency taxation.

Currently, South Korea's digital asset legislation is still under negotiation. As previously reported, legislators are pushing for the Basic Law on Digital Assets, while regulators are debating issues such as stablecoin issuers, reserve rules and regulatory powers.

The "Han River Project" does not give consumers central bank accounts

Official materials from the Bank of Korea describe the "Han River Project" as infrastructure built around institutional (wholesale) CBDC. Financial institutions use central bank components, while consumers interact with deposit tokens issued by commercial banks. Retail CBDCs usually represent direct claims to the central bank and are open to the public for use; while consumer-oriented tokens in the Hanjiang Project are still linked to deposits held by participating commercial banks.

In the first phase of the pilot, users convert bank account funds into deposit tokens through participating banks 'mobile applications and consume them at approved entities and online merchants through QR codes. The first seven banks to participate include KB Kookmin Bank, Shinhan Bank, Woori Bank, Asiana Bank, Korea Industrial Bank, Agricultural Cooperative Bank and Busan Bank. The pilot will be conducted from April to June 2025 and will allow up to 100,000 adults to apply.

The Bank of Korea emphasized that this pilot is not the official launch of digital currency. Participating banks provide deposit tokens under the framework of South Korea's financial regulatory sandbox. The Hanjiang Project tests programmable public vouchers related to youth culture, childcare, student support or small business support. Such vouchers with additional conditions are limited to the specified purpose only and follow the established rules for each public project. Therefore, Zhang Donghe's question about restricted expenditures actually involves functions that have already appeared in the coupon test. However, the Bank of Korea document does not say that these restrictions will apply to all deposit tokens or traditional bank deposit balances.

Phase 2 Expand transfer functions and government applications

The Bank of Korea officially announced that the "Hanjiang Project" will enter the second phase on March 18, 2026. The project will increase the number of participating banks from seven to nine, adding BNK Gyeongnam Bank and iM Bank. The second stage includes point-to-point transfers, biometric authentication, and automatic transfers between deposits and token wallets. The number of available wallets is expected to increase from 100,000 to a maximum of 500,000.

The public sector uses being evaluated include government subsidies, electric vehicle charging support, and operating expenses for government agencies. The test is designed to assess whether programmable payments can implement the conditional restrictions of a specific grant or voucher class.

It has been previously reported that South Korean authorities have connected nine banks and major merchants to a plan worth 9.6 billion won to support deposit token payments through existing retail infrastructure.

Bank of Korea has always classified wholesale CBDC, deposit tokens and private stablecoins into different policy categories. Deposit tokens represent commercial bank liabilities recorded on infrastructure backed by tokenized central bank reserves; stablecoins rely on assets held by private issuers and are subject to a different legal structure.

South Korea's policy roadmap combines deposit token testing with proposed stablecoin rules. The central bank believes that a regulated banking union should initially dominate the issuance of stablecoins denominated in won.

Bank of Korea continues to study but has not decided to issue

Bank of Korea Governor Shin Hyun-song has supported continued work on CBDC and deposit tokens since he began his four-year term in April this year. In his inaugural speech, he included the "Hanjiang Project" and the Bank for International Settlements (BIS)'s "Agora Project" into the central bank's digital payments plan.

As previously reported, Shin supports expanding the second phase of the Hanjiang Project while promising to protect the stability of payments and settlements. But he did not announce the launch of retail CBDC in his speech.

The central bank said it is still studying privacy technologies and offline payment capabilities required for a universal CBDC. Its public materials do not set a issuance period, nor do they confirm that South Korean residents will obtain direct accounts with South Korean banks. Chang Dong-hyuk compared South Korea's direction with U.S. policy, noting that President Donald Trump directed in January 2025 that federal agencies should not establish, issue or promote CBDCs. He said Japan remains cautious and has not decided whether to issue digital yen although the Bank of Japan continues to conduct technical experiments.

It is expected that the second phase of the "Hanjiang Project" will begin testing the extended deposit token function in 2026. Bank of Korea has not announced an automatic transition to nationwide commercial adoption after the pilot ends.