Key takeaways:
- South Korea plans a Q1 pilot for a CBDC involving 100,000 citizens next year.
- The Bank of Korea delays CBDC issuance until the United States and Europe act.
In an ambitious move, the Bank of Korea (BOK) and financial authorities are set to launch a groundbreaking pilot program, inviting 100,000 Koreans to engage with deposit tokens based on the Central Bank digital currency (CBDC) in the coming year.
Presently, public vouchers for subsidies are issued by state and local governments. Banks will introduce digital vouchers in the form of certificate of deposit (CD) tokens.
This initiative builds upon the central bank’s October announcement expressing its commitment to real-world experiments with CBDC. As part of the pilot program, participants will be exclusively limited to using the CBDC for payments, with no option for storage, exchange, or transfer to other users.
This intentional constraint aims to focus on assessing the practicality and efficacy of issuing and circulating CBDC while providing valuable insights into its potential as a digital transaction medium.
However, participants will face restrictions on using the currency for purposes beyond payments, such as personal remittance. The primary objective is to evaluate its designated purpose while keeping other potential use cases on hold.
In addition to payment-related assessments, the pilot program will conduct technological experiments to gauge the feasibility and effectiveness of issuing and distributing these innovative financial products.
The BOK views CBDC as a promising solution to challenges in current government grant systems, addressing issues like steep transaction fees, delayed settlements, and heightened fraud risks, especially during events like the COVID-19 pandemic.
Notably, the BOK will collaborate with the Korea Exchange to integrate CBDC into a simulation system for carbon emissions trading. This includes testing the viability of delivery versus payment transactions between carbon emissions rights and payment tokens.
Despite these advancements, Bank of Korea Governor Rhee Chang-yong has emphasized that the benefits of South Korea becoming a leader in issuing central bank digital currencies are limited. He clarified that there is no intention to issue CBDC before the United States and European countries.
The plan is to test CBDC with vouchers while postponing its issuance until leading economies like the United States and Europe make a move.
This strategic approach positions South Korea to observe and learn from the experiences of these major players in the international CBDC landscape, underscoring the importance of synchronization in this rapidly evolving financial domain.
