South Korea to pilot tokenized deposits for government spending

The sandbox will test preset spending limits, timing controls and category restrictions for public sector expense payments.

South Korea’s Ministry of Economy and Finance (MOEF) is preparing to test blockchain-based payments for certain government expenses under a regulatory sandbox exploring distributed ledger technology (DLT)-based financial infrastructure.

The ministry said on Thursday that it selected a pilot project that will use tokenized deposits to execute government operational spending, with a full rollout targeting the fourth quarter of 2026. The program will initially launch in Sejong City and will test predefined spending conditions, including limits on timing and usage categories. 

Tokenized deposits are digital representations of traditional bank deposits on blockchain or other DLT infrastructure. Unlike many stablecoins, they remain bank liabilities and are designed to operate within the existing financial system.

The pilot would move South Korea’s deposit-token experiment beyond subsidies and into day-to-day public spending, offering an early test of whether programmable bank-backed money can make government payments more traceable and harder to misuse.

As part of the sandbox, the ministry will work with participating institutions to define the scope of the trial, with plans to expand the model and consider related legal and regulatory changes based on the results, according to the MOEF announcement. 

The initiative will focus on government operational expenses, which are currently processed through government-issued credit and debit cards managed through post-use reporting, the ministry said. 

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Under the pilot, spending parameters such as time windows and permitted categories will be predefined, allowing authorities to test whether tokenized deposits can improve oversight and reduce misuse of funds. 

The sandbox approval also enables the use of tokenized deposits for fund execution despite existing rules that require such expenses to be processed through government cards.

According to the ministry, the trial will serve as a basis for evaluating new payment and settlement methods, with potential implications for broader fiscal operations if the model proves viable. 

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The move follows South Korea’s earlier decision to use tokenized deposits for electric vehicle charging infrastructure subsidies, a pilot announced on March 19 with the Environment Ministry and Bank of Korea. 

At the time, MOEF said it aimed to convert one-quarter of treasury fund execution to digital currency by 2030, suggesting the new operational-spending pilot is part of a broader effort to expand tokenized payment rails in public finance.

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Source: CoinTelegraph