South Korea to pilot bank-backed tokenized deposits

South Korea’s Ministry of Economy and Finance will run a pilot using bank-backed tokenized deposits to process government operational payments in Sejong City, with a potential full rollout targeted for the fourth quarter of 2026. The ministry selected the project to run inside a regulatory sandbox for distributed ledger technology and will work with participating institutions to set the trial’s scope.

The pilot will use digital versions of traditional bank deposits issued on distributed ledger technology to execute predefined spending for selected government expenses. Under the sandbox rules, authorities have allowed the use of tokenized deposits for these payments even though current regulations require such expenses to be processed through government-issued credit and debit cards.

Initial tests will limit spending by time windows and permitted categories. The restrictions are intended to assess whether programmable, bank-backed digital funds can improve oversight and reduce misuse of public money. Tokenized deposits will remain liabilities of the issuing banks and will operate within existing banking frameworks while using distributed ledger infrastructure for record keeping and execution.

The ministry said the pilot will focus on routine operational spending that is now handled through government cards and managed through post-use reporting. Results from the Sejong City trial may inform legal and regulatory changes and will serve as a basis for evaluating alternative payment and settlement methods.

The pilot builds on an earlier program announced in March that used tokenized deposits for electric vehicle charging subsidies, run with the Environment Ministry and the Bank of Korea. At that time, the ministry set a goal of converting one-quarter of treasury fund execution to digital currency by 2030.

Sandbox tests will examine technical and operational limits, including how tokenized RWAs interact with existing bank systems and how predefined conditions are enforced on-chain or through connected platforms. The ministry will review outcomes with participating banks and institutions to decide whether to scale the model and what regulatory adjustments may be needed.