South Korean central bank unveils plans for 2024 CBDC pilot program

The pilot is being conducted to evaluate the feasibility of a future monetary system based on wholesale CBDCs

2 min read

Published: Nov 24, 2023 04:34:56 PM IST

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The Bank of Korea (BOK) has announced its plans to launch a pilot program for a central bank digital currency (CBDC) in collaboration with the country’s Financial Services Commission (FSC) and Financial Supervisory Service (FSS). The program will involve 100,000 citizens and is scheduled for 2024.

“Following consultations with relevant organisations and a review of related laws, the pilot project will be conducted first in the fourth quarter of 2024. The possibility of conducting separate pilots will be considered if banks propose new individual projects,” an official from the BOK said.

The plan for the pilot was announced following a meeting between BOK Governor Rhee Chang-yong and the Bank for International Settlements (BIS) General Manager Agustin Carstens. Carstens referred to the project as “digital Won” and praised the South Korean central bank’s efforts in preparing for their future monetary system.

Under the pilot program, commercial banks will issue deposit tokens in the form of CBDC to 100,000 selected individuals. The individuals can then use those deposit tokens to purchase goods, similar to using a voucher at a store.

However, participants will only be able to use the currency for their designated purpose of payment. Additional use cases like personal remittances will not be allowed.

The commercial banks selected for the pilot program will recruit participants between September and October of the following year and continue the project for the next three months.

Technological experiments will also be conducted as part of the pilot. They will evaluate the feasibility and effectiveness of issuing and distributing a CBDC. For instance, the BOK will collaborate with the Korea Exchange to integrate their CBDC into a simulation system for carbon emissions trading.

The BOK explained that digital currencies can address challenges associated with existing voucher systems. These challenges include high transaction fees, slow settlement processes, limitations of post-transaction verification and concerns over fraudulent claims. It is especially relevant for Covid-19 special grants and childcare grants provided by the government.

The country’s CBDC pilot initiative is a significant development for the future of its financial system. The pilot program aligns them with the global trend of exploring CBDC potential, in line with several other countries, like Brazil, China, and India.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash