"80% of Central Banks Worldwide Research Digital Currency... China and France to Pilot This Year"

Central Banks Worldwide Focus on CBDC
Bank of Korea Establishes Dedicated CBDC Team... Begins Related Research

*Source: Bank of Korea

[Asia Economy Reporter Kim Eun-byeol] Central banks around the world are paying close attention to Central Bank Digital Currencies (CBDCs). CBDCs are a new electronic form of currency issued by central banks, separate from existing reserve deposits or settlement deposits within central banks.

As major central banks began considering the use of CBDCs in interbank payment systems, the Bank of Korea also established a dedicated organization and started related research.

According to the Bank for International Settlements (BIS) on the 8th, more than 80% of central banks worldwide were conducting CBDC-related research as of last year. This figure increased by about 10 percentage points compared to the previous year. Among the countries conducting CBDC research, about 50% were simultaneously researching CBDCs for both large-value and retail payments.

About 10% of central banks worldwide responded that they might issue CBDCs in the short term (within 3 years), and 20% indicated a possibility in the medium term (within 4 to 6 years). The likelihood of CBDC issuance has also increased compared to the previous year.

In particular, emerging market countries showed a higher likelihood of issuance compared to advanced countries. Advanced countries showed interest in CBDCs for large-value payments, while developing countries with underdeveloped payment systems showed interest in retail payment CBDCs. Large-value payment CBDCs are mainly used by financial institutions, whereas retail payment CBDCs are used by all economic agents.

By country, France and Switzerland plan to conduct pilot projects for large-value payment CBDCs, while China, Turkey, and Sweden plan to pilot retail payment CBDCs. The European Union (EU) has also announced that it will consider the possibility of issuing retail payment CBDCs. Notably, France plans to begin testing CBDCs in the interbank payment sector in the first quarter of this year.

Lael Brainard (left), Member of the Board of Governors of the U.S. Federal Reserve (Fed), and Jerome Powell, Chairman of the Fed [Image source=Reuters Yonhap News]

The United States, the United Kingdom, Japan, Australia, Russia, and South Korea are currently understood to have no plans to issue CBDCs. However, on the 5th (local time), Lael Brainard, a member of the U.S. Federal Reserve Board, expressed interest at a conference held at Stanford Graduate School of Business, stating, "Considering the importance of the dollar, it is very important that we lead in CBDC policy development and research," and added, "We are conducting research and experiments on potential use cases of digital currencies and distributed ledger technology." Bloomberg News interpreted this as "the Fed, which had opposed digital currencies, is now taking a closer look at them."

The active engagement of countries in CBDC research is interpreted as being due to the imminent issuance of China's Digital Yuan. The People's Bank of China, which began related research in 2014, plans to pilot CBDC distribution in major cities such as Shenzhen and Suzhou in the first half of this year. The CBDC is expected to operate by the People's Bank of China issuing digital currency, which Chinese commercial banks exchange and then distribute to the public. As China's CBDC issuance approaches, other countries have become busy with the thought that another 'currency war' may begin. With China taking the lead, there is a concern that a tectonic shift in the global financial market could occur, making it crucial not to lose the initiative.

Meanwhile, the Bank of Korea will not issue a CBDC immediately but has decided to establish an organization and start research. The Bank of Korea has newly established a Digital Currency Research Team and a Technology Division and is expanding its professional workforce. The Bank of Korea conducted a pilot test of interbank fund transfers based on distributed ledger technology in 2017, a retail payment pilot test at the end of 2018, and is currently conducting a pilot test for simultaneous settlement of securities payments.

This content was produced with the assistance of AI translation services.