South Korea Launches Domestic Stablecoin Trial to Compete with US Dollar Dominance

NH NongHyup Bank of South Korea has introduced a pilot project aimed at simplifying value-added tax (VAT) refunds for incoming tourists through the use of stablecoins, representing a notable advancement in the nation’s ongoing efforts to digitize its financial sector. This trial, developed in partnership with blockchain networks

, Fireblocks, , and Worldpay, seeks to automate the refund process and enable instant settlements via stablecoin technology, according to a article. The proof-of-concept (PoC) does not utilize actual funds or customer information, but instead aims to demonstrate technical viability and improve operational workflows, as stated in the bank’s press release.

This initiative is designed for the expanding tourism industry, with South Korea recording 16.37 million foreign arrivals in 2024—a 48.4% jump from the previous year, as highlighted in a

report. The VAT refund platform from NH NongHyup enables international visitors to recover 10% of the tax paid on qualifying purchases upon departure. By moving away from the conventional paper-based system, the bank intends to make the process more convenient for travelers and merchants, while also cutting down on administrative expenses, as mentioned in the article. The PoC utilizes Avalanche’s blockchain to automation through smart contracts and stablecoin-based currency conversion, potentially removing delays in international settlements, as detailed in the report.

This development supports South Korea’s national agenda to establish a stablecoin market tied to the Korean won (KRW), countering the prevalence of U.S. dollar-backed stablecoins such as

(USDT) and Circle’s . Financial authorities and legislators are working to finalize stablecoin regulations by the end of the year, which will set issuance guidelines and ban yield-generating stablecoins, mirroring U.S. rules under the GENIUS Act, as discussed in a analysis. At the same time, leading banks and technology companies are forming alliances to create the necessary infrastructure for stablecoin initiatives. KB, Shinhan, Hana, and Woori Financial Groups have joined forces with tech leaders like Naver, Kakao, and Samsung to develop platforms for issuing and managing won-backed stablecoins, according to a report.

Despite the momentum, regulatory discussions continue. The Bank of Korea (BOK) has raised concerns that permitting private firms to issue stablecoins could threaten financial stability and monetary policy. BOK representatives maintain that only licensed banks should be allowed to issue stablecoins, while industry advocates push for broader participation to encourage innovation, as referenced in a

article. The Financial Services Commission (FSC) has stressed the importance of managing risks while remaining globally competitive, calling for alignment with international standards as the U.S. and Japan advance their own stablecoin regulations, as reported in a article.

NH NongHyup’s pilot is part of a larger movement: South Korea’s financial industry is striving to become a frontrunner in digital currency innovation. With domestic stablecoin transactions already surpassing $41 billion, banks are focusing on collaborations to speed up adoption, as noted in a

article. For example, Woori Financial Group has deepened its partnership with Samsung Electronics and owns a stake in BDACS, the company behind the KRW1 stablecoin issued in a 2024 pilot, as detailed in a analysis.

As lawmakers work on new regulations, the government is under increasing pressure to act quickly. Critics warn that delays could allow international rivals to take the lead, especially as the U.S. and Japan accelerate their own stablecoin projects. “The technology is ready, and the market is calling for it,” said legislator Min Byoung-dug, a prominent supporter of President Lee Jae-myung, who has prioritized KRW-linked stablecoins in his policy agenda, as reported in a

article.