Bank of Korea backs CBDC model as Shin flags stablecoin fragmentation and limits to unified money systems.
South Korea’s central bank is signaling a clear pivot in its approach to digital finance. New leadership at the Bank of Korea is aligning monetary policy with rapid global shifts in technology and geopolitics. At the same time, academic work tied to the institution questions the structural viability of stablecoins.
Digital Won in Focus as Bank of Korea Expands CBDC Trials Under Shin Hyun-song
New governor of the Bank of Korea Shin Hyun-song began his four-year term with a clear policy message. Speaking at his inauguration in Seoul, Shin pointed to rising uncertainty in inflation and growth.
According to him, this is driven partly by supply shocks linked to tensions in the Middle East. He stressed the need for flexible monetary policy while maintaining both price and financial stability.
The governor confirmed that the central bank will continue work on digital currency systems, including its ongoing CBDC initiatives and deposit token experiments. These instruments would operate within a regulated framework, giving authorities clearer oversight of liquidity, settlement, and financial stability.
Moreover, programs such as Project Hangang are expected to test how digital forms of the Korean won can function in real-world payments. Authorities also plan to expand foreign exchange market access and build offshore settlement systems to support the won’s global use.
Cross-Chain Friction Weakens Stablecoin Network Effects, BIS Research Finds
At the same time, Shin’s earlier research raises doubts about the long-term role of stablecoins in this system. In a recent paper released through the Bank for International Settlements, he examined how blockchain design leads to fragmentation.
According to the study, these structural differences create competing ecosystems and not a unified financial network. Users tend to migrate toward chains with lower fees, even if those chains are more centralized.
For example, activity often shifts from Ethereum to alternatives like Solana or Tron, where transaction costs are lower. This dynamic leads to fragmentation not only in blockchain use but also in stablecoin markets.
Even when issued by the same entity, stablecoins on different chains are not directly interchangeable. Shin noted that USDC on Ethereum is distinct from USDC on other networks, as transfers between them require bridges. These processes add friction and divide liquidity across ecosystems.
The paper argues that such fragmentation undermines a core property of money, which is unity. In traditional systems, one unit of currency is always equal to another. However, stablecoins can lose this uniformity when spread across multiple chains.
Without a central authority to guarantee convertibility, their value and usability become dependent on network-specific conditions. Shin stated that stablecoins currently operate in silos, lacking a unified currency structure.
Each chain operates with its own liquidity pools and pricing dynamics. As a result, stablecoins struggle to achieve the network effects that support widespread adoption.
In contrast, central bank-issued digital money offers a different model. A unified ledger maintained by a trusted institution can maintain transaction consistency. It can also support programmable payments without relying on decentralized validation systems.
Shin argued that many benefits associated with blockchain, such as automation and efficiency, do not require anonymous consensus mechanisms.
