Key Takeaways
- CBDC pilot program to involve both private banks and public institutions
- For wholesale CBDC, participating banks will tokenize their deposits and circulate them within a network overseen by the BOK, FSC, and FSS.
In a joint announcement on October 4, the Bank of Korea, along with the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), disclosed their plans to start a pilot project focused on examining the technical underpinnings of a CBDC.
This initiative underscores South Korea’s growing commitment to exploring the possibilities of digital currencies, a journey that commenced as early as 2020. Notably, the BOK successfully completed the initial phase of its CBDC simulation project in December 2021. This phase encompassed testing various functions, including the creation, issuance, and distribution of a CBDC within a controlled virtual environment.
Throughout this period, the BOK has been actively researching the potential introduction of a CBDC. Their efforts have extended to investigating intelligent contracts, offline payments facilitated by near-field communications, and cross-border payment mechanisms.
To further evaluate the feasibility of a CBDC, the central bank collaborated with 14 banks and the Korea Financial Telecommunications and Clearings Institute (KFTCI) in the latter part of the year for verification purposes.
The upcoming CBDC pilot program will involve both private banks and public institutions, with technical expertise provided by the Bank for International Settlements (BIS). The project will focus on assessing both retail and wholesale CBDCs.
In the case of a wholesale CBDC, participating banks will tokenize their deposits and circulate them within a network overseen by the BOK, FSC, and FSS. Live testing for the retail CBDC is scheduled to commence following the establishment of the system, expected to be in place by the fourth quarter of 2024.
Lee Myung-soon, the first deputy governor of the FSS, views the pilot as a significant stride toward shaping the future monetary landscape. He stated, “The BOK has persistently pursued technological research related to CBDC. This test, building upon past achievements, represents a significant step toward creating a prototype for the future monetary system.”
South Korea’s entry into CBDCs aligns with the global trend of central banks exploring digital currencies as potential complements or alternatives to traditional forms of money. The latest development also comes amid reports the Reserve Bank of India is looking to extend its wholesale CBDC to the interbank or call money market.
