Bank of Korea "March CBDC External Consulting Completed... Pilot Test in Second Half"

Interest in the Timing of Central Bank Digital Currency Adoption

Lee Ju-yeol, Governor of the Bank of Korea [Photo by Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] The Bank of Korea plans to complete external consulting on central bank digital currency (CBDC) by next month and begin pilot testing in the second half of the year. This move, which is essentially aimed at introducing CBDC, has drawn market attention to the timing of its adoption.

According to the Bank of Korea on the 23rd, consulting related to CBDC will be completed by the end of next month, and a pilot system will be established within the year. In the second half of the year, tests will be conducted in a virtual environment to verify whether the payment system works properly when using CBDC. The impact of usage and the transmission of monetary policy will also be reviewed. Bank of Korea Governor Lee Ju-yeol said during a briefing to the National Assembly’s Planning and Finance Committee, "The review of CBDC design and technology is almost complete," adding, "Testing in a virtual environment is scheduled to be conducted within this year, proceeding as planned."

The Bank of Korea has settled on issuing a CBDC using a distributed ledger method based on blockchain technology. Distributed ledger technology stores ledgers in multiple locations using blockchain technology, which has the advantage of increased anonymity. To be attractive as digital currency, it is preferable to have characteristics similar to cash; however, if the central bank centrally manages all transactions, information accumulates in one place and anonymity decreases. For this reason, most central banks, except China, prefer issuing distributed ledger CBDCs.

Central banks worldwide, including the Bank of Korea, initially did not feel concerned despite the growing scale of virtual asset investments like Bitcoin. The turning point came in 2019 when Facebook launched the virtual asset ‘Libra.’ Unlike existing virtual assets such as Bitcoin, Libra is a ‘stablecoin’ that can be exchanged at a fixed rate with fiat currency issued by central banks. For example, 1 Libra can be exchanged for 1 dollar. This threatens the central bank’s exclusive authority to issue currency. This is why central banks around the world accelerated their CBDC research. The significant decline in cash usage, such as banknotes and coins, due to COVID-19 also accelerated CBDC research.

The Bank of Korea is also promoting the establishment of financial sector standards for decentralized identifiers (DID) to activate digital identity verification that can safely and easily confirm identity during non-face-to-face (untact) financial transactions. A Bank of Korea official said, "We will closely examine the impact of CBDC issuance on monetary policy, financial stability, and currency issuance operations, and actively participate in related international discussions," adding, "We will also analyze how the spread of private virtual assets affects payment and settlement and seek countermeasures."

◇Terminology Explanation

◆Central Bank Digital Currency (CBDC)= A digital form of fiat currency issued by a central bank. It can be stored in electronic wallets on smartphones and can be held like actual banknotes or coins.

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