The Bank of Korea, South Korea’s central bank, is setting the stage for its first public trial of a Central Bank Digital Currency (CBDC) in 2024.
Sources from the financial sector indicate that the Bank of Korea is about to kick off a competition to generate scenarios for the establishment of a CBDC private distribution system. The bank initiated a technical review for the launch of a CBDC in 2020, and after setting up a payment platform that operates both online and offline, it completed a practice test with local banks last year.
The Bank of Korea is planning to start a competition for micro-payment CBDC testing this July, targeting financial institutions that were involved in the CBDC practice test last year. This initiative will lay the groundwork for a CBDC pilot test aimed at the private sector next year.
The CBDC being put to the test is designed for micro-payments, which means it will be available to everyday financial consumers. CBDCs are usually divided into two types: macro-payment CBDCs used for transactions between banks, and micro-payment CBDCs used by all economic participants, including the general public.
The effective rollout of micro-payment CBDCs depends on the collaboration between the Bank of Korea and local banks. While the Bank of Korea could potentially plan the distribution of macro-payment CBDCs, creating a detailed retail distribution system at the grassroots level could be challenging.
Last year, 15 organizations, including five major local banks – KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH Nonghyup Bank – took part in the CBDC linkage experiment with the Bank of Korea. The bank is expected to choose from these organizations to finalize the retail distribution structure of the CBDC and move forward with private testing.
The Bank of Korea has been maintaining close communication with banks until recently, wrapping up the CBDC infrastructure linkage test, and aims to finalize the retail scenario within this year. It seems that the transition into actual private operations will begin from next year.
The Bank of Korea has recently expanded the digital currency research team and plans to undertake a broader range of studies in the future. However, the specific timeline and plan for private testing cannot be disclosed at this time.
The strategies and research methodologies for the introduction of CBDCs have varied based on the economic conditions of each country. While developing countries have been pushing for the launch of CBDCs for financial inclusivity, developed countries have been focusing on the stability of their financial systems. However, with the decline in cash transactions and the spread of private digital currencies, developed countries are also showing interest in micro-payment CBDCs.
CBDCs are gaining significant momentum in the global financial landscape. Recently, the Bank of England took a leap forward by constructing a CBDC payment infrastructure and conducting operational tests in collaboration with the Bank for International Settlements (BIS). Adding to the momentum, the European Union (EU) unveiled a legislative draft on the 28th, outlining the introduction of the digital euro. This digital euro, a legal virtual asset, is set to serve as legal tender within the eurozone. Meanwhile, China’s version of CBDC, the digital Yuan, is making strides in practical applications, including housing funds and other scenarios, in select cities
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