Bank of Korea to Begin Testing Distribution of Digital Currency

Recently, a growing number of countries are rushing to issue digital currency paving the way towards a world with a cashless future. Since 2019, Korea has become the third-largest cryptocurrency economy in the world after the US and Japan. In the same year, Korea decided to create a task force particularly for central bank digital currency (CBDC) research. 

Central bank digital currency:

A CBDC is a digital currency issued by a central bank that has the status of legal tender and other properties of centralized, fiat money. In its “monetary policy for 2020” brief, the bank of Korea (BoK) said it would continue to build on its existing research into distributed ledger technology, crypto assets, and CBDCs and to play an active role in overseeing and enhancing the security of payment and settlement systems. As part of its CBDC research agenda, (BoK) ostensibly planned to recruit additional experts in the field. The bank also proposed to use BIS (bank of international settlements) principles for financial market infrastructures (PFMI) to enact assessment principles for its oversight of domestic financial systems. Having examined the possible legal and social effects of CBDC, (BoK) concluded at the starting of 2019 that there was no reason for the bank to issue a CBDC that would be available for the wider public. Still, (BoK) continued with the program amid concerns other nations could take the lead if it sits on the sidelines.

22-month pilot program:

Korea has rapidly became one of the most technologically developed countries in the world. In April (BoK), had set forth a schedule to investigate (CBDC) program. Although this program research doesn’t indicate the permanent launching of the Korean digital currency. This is a 22-month pilot program that consists of three phases. Phase one which consisted of designing and assessing (CBDC) technology ended in July. While the ongoing second phase consists of the infrastructure analysis of this technology done by a private institute.

The basic purpose of issuance of CBDC research program:

(BoK) announced on October 7th that it will launch the third phase that comprises of initiation of transactions throughout the country in 2021. Although the timetable is not compulsory to be followed, the CBCD design is almost ready to be tested further. The currency issuance and stimulation will be undertaken by the central bank. Whereas circulation will be managed by private five financial institutions. (BoK) mentioned that the circulation of currency will have to be mediated by private financial services firm probably banks on a blockchain, similar to how cash is currently being circulated. Also, the development of CBCD technology including its strength and drawbacks will be monitored and analyzed to determine the feasibility of the program. During this pilot program, all the legal and technical ramifications of replacing physical cash with digital currency in Korea would be carefully monitored. The bank of Korea also decided to remain proactive in the rapid shift of the payment environment nationally and internationally