Bank of Korea to Pilot Central Bank Digital Currency
SEOUL, Oct. 5 (UPI) — The South Korean government has announced plans to initiate testing of a central bank digital currency (CBDC) this month.
The Bank of Korea and the Financial Services Commission have disclosed their intention to conduct a trial run of the digital currency among banks and financial institutions.
From the fourth quarter of 2024, select individuals will have limited access to the CBDC platform.
“The project aims to assess the feasibility of integrating a ‘wholesale CBDCs’-based monetary system. Commercial banks will employ wholesale CBDCs for interbank fund transfers and final settlements among financial institutions,” stated the Bank of Korea.
“By introducing a prototype model for a future monetary system that incorporates advanced information technology, this initiative is anticipated to establish the groundwork for the implementation of innovative payment and financial services that distinguish themselves from existing forms,” the statement continued.
CBDCs are digital currencies issued by a country’s central bank and are based on blockchain technology, akin to popular cryptocurrencies like bitcoin and ethereum.
However, unlike these cryptocurrencies, the value of CBDCs is secured by the central bank and is equivalent to fiat currency.
There are two types of CBDCs: wholesale and retail. Wholesale CBDCs are primarily utilized by financial institutions for interbank transactions, while retail CBDCs cater to consumers and businesses.
“Korea’s initial plan involves the testing of wholesale CBDCs first, followed by the assessment of retail CBDCs with certain limitations in the following year. The exact timeline is yet to be determined,” stated Moon Young-bae, Chief of Digital Finance Research Institute, as informed to UPI News Korea.
“Once CBDC is launched, stablecoins will face significant challenges. Furthermore, for the seamless integration of smart cities and metaverse ecosystems, CBDCs will become indispensable,” added Moon, who is regarded as one of South Korea’s leading digital currency experts.
Stablecoins like Tether and USDC, which are pegged to reserve assets such as the U.S. dollar or gold, currently exist in the cryptocurrency market.
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