South Korea to test blockchain for government spending
South Korea’s Ministry of Economy and Finance will begin testing blockchain-based deposit tokens for government spending in the fourth quarter. The move is part of a broader effort to modernize how public funds are managed.
According to local media, the pilot project allowing Treasury funds to be spent as digital currency was approved under a 2026 regulatory sandbox program. The initiative will enable business promotion expenses—currently paid through government procurement cards—to be processed using tokenized deposits.
This marks a shift from a long-standing system governed by the Treasury Funds Management Act, which required card-based payments. Within the sandbox framework, government agencies will be allowed to temporarily operate outside these rules to test new methods.
What the pilot aims to achieve
Authorities expect tokenization to improve oversight of public spending. Token-based payments can be pre-programmed with specific conditions, such as when funds can be used, which industries can accept them, and other limitations. This could reduce the need for manual audits, especially for transactions made outside standard working hours.
The system also removes intermediaries like card networks, which the ministry says could lower transaction costs for small businesses receiving government payments.
This is the second time deposit tokens are being used in Treasury operations. A previous pilot involved subsidies related to electric vehicle charging infrastructure.
The trial will take place in Sejong City after selecting participating companies. If the program demonstrates better spending control and cost efficiency, authorities plan to expand it.
How deposit tokens differ from CBDCs
Deposit tokens are a digital form of bank money issued by commercial banks on blockchain infrastructure. Essentially, they represent traditional customer deposits but in tokenized form, allowing them to be programmed and used for payments without intermediaries.
By contrast, a central bank digital currency (CBDC) is issued directly by the state. While deposit tokens remain part of the commercial banking system, CBDCs are liabilities of the central bank—essentially a digital version of cash.
The key difference lies in issuance and use: deposit tokens are tools for banks and businesses, while CBDCs are instruments of the state and monetary policy.
It is worth noting that South Korean regulators have also agreed to introduce a 20% cap on the ownership share of major shareholders in cryptocurrency exchanges.
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