Central banks urged to prepare for digitalization: BOK chief
Bank of Korea (BOK) Gov. Rhee Chang-yong delivers a keynote speech on digital money in Seoul, Dec. 15. Courtesy of Bank of Korea
Central banks around the globe should be prepared to face a fast-changing financial landscape as digitalization is an undeniable trend and a present reality, the chief of Korea's central bank said Friday.
During a conference on digital money titled "Digital Money: Navigating a Changing Financial Landscape," Bank of Korea (BOK) Gov. Rhee Chang-yong said the digital financial landscape continues to evolve rapidly.
"The proliferation of stablecoins, such as USDT and USDC, poses new challenges to central banking operations. Despite their name, stablecoins often lack stability, raising concerns about financial stability. Their widespread adoption could diminish the role of central bank money and impair the effectiveness of monetary policies," he said.
He said for instance, while currently restricted to domestic use, the potential involvement of global networks like Visa or Mastercard could pose significant challenges for countries like Korea, particularly in managing capital flows and maintaining monetary policy independence.
"This underscores the urgency for central banks to consider introducing central bank digital currencies (CBDC), whether retail or wholesale," Rhee said.
He introduced Korea's pilot project for a retail CBDC system utilizing distributed ledger technology (DLT).
Although the potential advantages of a retail CBDC over existing fast payment methods are not clear, a significant advantage of a retail CBDC could be its programmability, he stressed.
"This feature unlocks a realm of possibilities, such as executing complex, conditional transactions automatically through smart contracts, akin to assembling 'money legos.' However, it's worth noting that such programmability is also possible with wholesale CBDCs," he said.
The BOK chief also said that the central bank, along with financial regulators and the Bank for International Settlements, is working on a second CBDC pilot project that primarily focuses on a wholesale CBDC and its integration with tokenized bank deposits, and explores the issuance of tokenized e-money by banks and non-bank financial institutions, fully backed by wholesale CBDCs.
But Rhee also said there are unresolved issues, such as the participation of non-depository or non-financial institutions and the implementation of appropriate regulations. (Yonhap)