[News Terms] Accelerating Commercialization of ‘CBDC’… BOK Real Transaction Testing

The Bank of Korea, together with the Financial Services Commission and the Financial Supervisory Service, will conduct a real transaction test of Central Bank Digital Currency (CBDC) usability targeting the general public. Through this test, which focuses on the digital voucher function, the Bank of Korea plans to analyze the ripple effects that CBDC may have on the economy and finance in the future and to review consumer protection issues.

Bank of Korea Governor Lee Chang-yong is having a discussion with Agustin Carstens, General Manager of the Bank for International Settlements (BIS), on central bank digital currency (CBDC) and future monetary systems at the Bank of Korea Annex in Jung-gu, Seoul, on the 23rd.
[Photo by Yonhap News]

CBDC is a term combining Central Bank and Digital Currency, referring to digital currency issued by a central bank. It is easy to understand it as a form of currency directly issued by the central bank in an electronic form instead of paper. Therefore, unlike virtual currencies such as Bitcoin, CBDC applies the same exchange rate as existing currency, so there is no risk of value fluctuation.

There are two main ways to operate CBDC. The first is the single ledger method, where the central bank manages CBDC accounts and transaction records. This can be understood as a prepaid card charging method. Like a prepaid card, CBDC is preloaded with an amount and used for payment when purchasing goods. Using this method, the central bank can efficiently manage the issuance and circulation of CBDC, but individual anonymity may not be guaranteed.

The other method is a distributed ledger managed jointly by multiple stakeholders using blockchain technology. This structure stores and verifies CBDC transaction records distributed across multiple nodes using blockchain or distributed ledger technology. Blockchain can be likened to a shared ledger managed by financial institutions. It is easy to understand if you think of all financial consumers’ transaction records being written in a ledger and financial institutions each having a copy of it. If you want to modify the transaction record between consumer A and financial institution B, you must simultaneously manipulate all financial institutions’ ledgers identically. If blockchain technology is applied to CBDC, the central bank and other institutions must share the management of CBDC transaction records, thereby enhancing security and transaction transparency. However, the system is complex and difficult to manage.

Depending on the scope of use and users, CBDC can also be classified into general-purpose, which all economic agents can use, and institutional-use, which only financial institutions such as banks can use. General-purpose CBDC is issued directly to households and businesses and used like cash in daily life, while institutional-use CBDC is issued to financial institutions and used for inter-institutional fund transactions and final settlements.

Meanwhile, the Bank of Korea announced earlier last month that it would promote a CBDC usability test for building future currency infrastructure in cooperation with the Financial Services Commission, the Financial Supervisory Service, and the Bank for International Settlements (BIS). First, based on the ‘institutional-use CBDC’ issued by the Bank of Korea, banks will issue ‘deposit tokens,’ and an experiment will be conducted where customers use these in actual transactions. Next year, a real transaction test targeting the general public will be conducted focusing on the ‘digital voucher’ function. Banks will issue deposit tokens with voucher functions, and when users purchase goods, payments will be made to the merchants accordingly.

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