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The Bank of Korea (BOK) announced its first move toward adopting a central bank digital currency (CBDC). A CBDC is a new form of digital money issued by a central bank.
The BOK, the Financial Services Commission (FSC), and the Financial Supervisory Service (FSS) made a joint announcement, Wednesday, unveiling a project that will assess the viability of a future monetary system grounded on "wholesale CBDCs."
This project is a collaborative effort between the public and private sectors, initially involving the participation of commercial banks. Experts from the Bank for International Settlements (BIS) have been providing technical advice on the design and development of the network since its preparation stage.
A CBDC comes in two forms: retail and general-purpose CBDCs and wholesale CBDCs. While the former is directly accessible to general economic entities, such as households and businesses, the latter is only available to financial institutions for the purposes of interbank fund transfers and final settlements.
Commercial banks will utilize wholesale CBDCs for interbank fund transfers and financial settlements among financial institutions, similar to their current practice of utilizing deposits in their current accounts at the BOK to facilitate such transactions. The banks will issue payment instruments in the form of tokenized deposits within the network managed jointly by the BOK, FSC and FSS. These payment instruments will be circulated securely within the network, the central bank said.
"According to research from the BIS this July, more than half of the worldwide central banks are running pilot projects on CBDC, and more than 24 countries are expected to adopt CBDC by 2030," said First Deputy Governor of FSS Lee Myung-soon, during a press meeting held at the BOK on Wednesday.
"The BOK has persistently pursued technological research related to CBDC. This test, building upon past achievements, represents a significant step towards creating a prototype for the future monetary system," Lee added.
From left, the Bank of Korea (BOK) Senior Deputy Governor Ryoo Sang-dai, the Financial Services Commission (FSC) Vice Chairman Kim So-young, and Financial Supervisory Service (FSS) First Deputy Governor Lee Myung-soon explain their plans on testing a central bank digital currency during a press meeting at the BOK's headquarters, Wednesday. Joint Press Corps
For the first time globally, real-world experiments will be conducted, albeit on a limited scale. A portion of the public will have the opportunity to participate, experiencing the advantages of these new digital payment instruments firsthand. Following the required system setup, this phase is anticipated to begin around the fourth quarter of next year.
The current urgency to research the future of digital financial infrastructure is intensifying as the shift towards a digital economy accelerates, and the usage of cash significantly decreases.
Developing nations such as Nigeria and the Bahamas have already adopted a general-purpose CBDC, while China is aggressively expanding its pilot systems. The European Union announced its Single Curreny Package to prepare the legal basis for a digitalized euro. The U.S., Japan and the U.K. are currently researching relevant technology.
"Global central banks are closely watching this test, as it is conducted in cooperation with the BIS," said Ryoo Sang-dai, senior deputy governor of the BOK.
"Together with the BOK, we will bring some expertise and the know-how of running the experiments. But we're also very keen to learn from the BOK's own expertise and from the direct experience of running a wholesale CBDC project in an economy as developed and digitized as Korea," said Cecilia Skingsley, Head of BIS Innovation Hub.
However, the central bank emphasized that this project is aimed at exploring an optimal CBDC design, which is suitable for Korea's economic situation, and does not imply the official introduction of CBDC. The central bank also pledged to continue its research on retail and general-purpose CBDCs.
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