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By Lee Kyung-min
A growing number of IT firms are hoping to collaborate with Bank of Korea on a project to test-run Central Bank Digital Currency (CBDC), a central bank-issued digital currency that will represent the country's official currency in digital form.
The central bank plans to assess the viability of issuing a digital currency amid a rapid decrease in the use of cash.
Prospective digital partners will be required to have exceptional data storage, management and utilization capabilities that will best advance the central bank's drive for the CBDC to be more than a simple settlement service toward a closer integration of digital payment services whereby using the currency is as simple as using cash.
Guaranteeing circulation without any technical glitches will be a top priority for the stable operation of the virtual currency that could eventually replace paper money.
Samsung SDS and a coalition led by LG CNS are seeking to participate, as are latecomers Naver and Kakao that have formed an alliance to join the project.
There is speculation that the Samsung affiliate is better positioned because it consulted with the central bank in the drafting of a request for proposal (RFP) to be filled out by bidding firms.
LG CNS is forming an alliance with KB Kookmin, Shinhan, Hana and Woori banks. Similarly, Naver is seeking to set up a consortium with its key subsidiaries LINE Plus and Naver Financial. Kakao announced last year that its blockchain subsidiary Ground X will join the bid.
The partner firm must be able to initiate the first phase of tests in August to run a pilot program with a digitally simulated environment created to verify the virtual currency's functionality, following a technical evaluation next month. A four-month trial will run through December on a cloud platform to verify the technical feasibility of CBDC issuance, distribution and recovery.
The second phase of the trial will explore the possibility of the expansion of CBDC use and widening the implementation of technology to strengthen personal information protection to be completed by June 2022.
Also to be examined will be an increased applicability and regulation of CBDC concerning overseas remittance and digital asset purchase.
The Center for International Finance said CBDC issuance will "increase monetary policy effects to stimulate domestic demand and ease deflationary pressure." Also to become effective will be the implementation of providing relief cash in times of economic crisis, because CBDC will be transferred directly to an individual's bank account, it added.
