BOK head underscores private sector cooperation in central bank-led digital currency project

Bank of Korea Gov. Rhee Chang-yong speaks during a forum at the Korea Development Institute in Sejong, May 15. Yonhap

Bank of Korea Gov. Rhee Chang-yong is holding individual and group meetings with the heads of Korea’s six major commercial and state-run lenders. According to market watchers Tuesday, the move is unprecedented for the central bank and signals a push for greater participation in its key digital currency initiatives.

Central to the meetings were Project Agora and Project Hangang.

The former is a global central bank digital currency (CBDC) project spearheaded by the Bank for International Settlements (BIS). Participants include the central banks of the U.S., U.K., Japan, France, Switzerland and Mexico and the Institute of International Finance (IIF).

It explores how cross-border settlements and payments can be faster, cheaper and more stable with the help of tokenized wholesale central bank funds and commercial bank deposits.

The latter is a localized pilot version of the project whereby real-time CBDC-mediated transactions are being tested by 10,000 users. Unlike the global cross-border project, the participants are limited to Korean consumers.

According to the central bank and the financial industry, Rhee paid a visit last week to KB Kookmin, Shinhan, Hana, Woori, NH NongHyup, and Industrial Bank of Korea headquarters in Seoul for a 30-minute one-on-one with each CEO.

The rare direct engagement illustrates the efforts and commitment of Rhee, chair of the BIS Committee on the Global Financial System, one of the most important and influential committees under the BIS. He assumed the role in 2023.

Rhee stressed the long-term benefits of joining the projects, including lower operational and legal costs for foreign currency transactions as well as the opportunity to have a say in shaping global standards.

The top monetary policymaker promised to shoulder one-third of the costs needed to run Project Hangang. Previously, the participating lenders were required to bear the entire cost.

The one-on-ones were followed by a meeting Monday of the six CEOs at the central bank headquarters, joined by IIF President and CEO Timothy Adams. Adams came to Seoul to discuss the BIS project and global financial system issues.

Also on the agenda were privately issued stablecoins and bank-issued deposit tokens — two emerging yet widely contested forms of digital currencies.

The former is pegged to traditional currencies, including the Korean won and the U.S. dollar. They are not properly regulated and therefore pose risks over financial stability, money laundering and sanctions.

The latter is issued by commercial banks, and are fully regulated and backed by fiat currency held in the accounts of bank customers.

Lawmakers and academic experts are calling for a unified legal framework to oversee their healthy coexistence.

“The success of two central bank-led projects as well as debates on stablecoins and deposit tokens will set the course for Korea’s digital initiative,” an industry watcher said.