Bank of Korea "Financial Institutions and CBDC Remittance Experiment in Second Half of Year... Technology Verification"

"Response to Expanding Market Dominance of Big Tech"

[Asia Economy Reporter Seo So-jeong] As discussions on central bank digital currencies (CBDCs) by central banks around the world are gaining momentum, the Bank of Korea plans to conduct experiments related to CBDCs in cooperation with various financial institutions in the second half of this year. Through verification of various design models and technologies, it aims to establish a CBDC design plan suitable for Korea's financial and economic environment.

On the 27th, the Bank of Korea stated in the "2021 Payment and Settlement Report" that "it plans to complete the second phase of CBDC introduction simulations by June and verify the technology that can be actually used."

The Bank of Korea has been continuously carrying out preliminary preparations for the introduction of CBDCs. From August to December last year, it created a virtual experimental environment and conducted the first phase of simulations implementing basic functions such as manufacturing, issuance, distribution, redemption, and destruction of CBDCs.

Since January this year, the second phase of simulations has been underway, experimenting with extended functions such as offline payments in situations where communication is cut off, trading of digital assets like digital artworks and copyrights, and cross-border remittances, with plans to complete by June.

Yoon Sung-kwan, head of the Electronic Finance Department at the Bank of Korea, said, "The important aspect of the second phase simulation is to verify whether payment functions can work properly in environments without internet connection," adding, "Once the simulation is completed, we plan to connect with financial institutions' test IT systems to check whether remittances and payments between users proceed smoothly."

Currently, major countries such as the United States, the European Union (EU), and Japan are actively conducting CBDC-related experiments due to the decline in cash usage and the spread of stablecoins. The Bank of Korea emphasized, "We will publish a comprehensive report summarizing CBDC-related research results in the second half of this year and exchange information with overseas central banks and international organizations."

Recently, with the prolonged COVID-19 pandemic, the use of non-face-to-face payment methods has rapidly increased, and in Korea, the scale of open banking joint network usage has surged. The spread of open banking enhances payment convenience and enables various payment innovations, but concerns have also been raised that the overall safety of payment systems could be compromised during the expansion of payment services by fintech companies.

The Bank of Korea stated, "Private sectors such as big tech companies are providing new payment services, accumulating vast transaction data, and using this to expand market dominance," adding, "There is a growing voice that this should be addressed through CBDCs, an open public currency infrastructure."

However, it is expected to take considerable time before CBDCs are introduced. This is because technological stability must first be secured, followed by social consensus.

Meanwhile, the Bank of Korea will also strengthen monitoring of the payment and settlement system. It added, "In response to the expanding influence of big tech in the payment and settlement sector, we plan to establish monitoring measures to ensure the safety of payment service platforms they provide."

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