Lee Chang-yong: "Participation in Non-Bank Payment Systems, Policy Decision Will Be Made After Risk Review"

Lee Chang-yong, Governor of the Bank of Korea, stated on the 15th, "We will comprehensively review the management of payment risks related to the participation of non-bank entities in the payment system and decide on policies accordingly."

On the same day, Governor Lee made this remark during his keynote speech at the '2023 MOEF-BOK-FSC-IMF International Conference' held at the Four Seasons Hotel in Jongno-gu, Seoul.

Lee Chang-yong, Governor of the Bank of Korea, is delivering a speech at the 2023 MOEF-BOK-FSC-IMF International Conference held on the 15th at the Four Seasons Hotel in Jongno-gu, Seoul. Provided by the Bank of Korea. [Image source=Yonhap News]

After mentioning that the Bank of Korea is preparing a pilot experiment for an 'institutional CBDC (Central Bank Digital Currency),' Governor Lee said, "If a new payment infrastructure is established, there is the issue of how much participation by non-bank entities should be allowed. While non-bank participation has the positive aspect of enhancing competition, there are also opinions that payment risk management must be strengthened accordingly. We will comprehensively review these aspects."

He referred to the fact that in October, the Bank of Korea, in cooperation with the Financial Services Commission, the Financial Supervisory Service, and the BIS (Bank for International Settlements), launched the institutional CBDC experiment (Phase 2 CBDC pilot), explaining the current status, significance, and challenges of Korea's CBDC research and development.

Regarding the reason for starting the Phase 2 pilot, he said, "From 2021, for two years, we implemented and experimented with a general-purpose CBDC simulation system using distributed ledger technology. Given that transactions are already conveniently conducted using credit cards and open banking, and considering additional benefits that CBDC finds difficult to provide, such as airline mileage accumulation, it was difficult to definitively answer whether a general-purpose CBDC is truly necessary in Korea and whether the private sector would actively use it if introduced."

He continued, "In the Phase 2 pilot, it is possible to issue deposit tokens that digitalize deposits based on institutional CBDC. We also designed a system that allows banks to issue e-money tokens fully backed 100% by institutional CBDC."

He explained, "Both deposit tokens and e-money tokens will be issued and circulated on a monetary ledger jointly operated by the central bank and banks. Separate from the monetary ledger, there exists a satellite ledger that trades digital assets. We plan to experiment whether special payment tokens issued based on e-money tokens on this satellite ledger can be used as payment for assets."

Governor Lee evaluated the significance of this experiment, noting that it plans to conduct real transaction tests targeting the general public.

He also cited the expected effects of this experiment as ▲ verifying the pros and cons of programmable functions ▲ maintaining banks' financial intermediation and credit creation functions ▲ preventing side effects such as the proliferation of speculative virtual assets or private stablecoins ▲ preparing for situations where new payment infrastructures like deposit tokens are linked across countries.

He diagnosed that there is a need for review due to concerns that digital currencies trusted by the central bank might be used like private stablecoins through the satellite ledger. Governor Lee said, "In the Phase 2 pilot, we will also conduct technical experiments linking the monetary ledger and the satellite ledger. To actually connect the monetary platform, which is the monetary ledger, and the asset platform, which is the satellite ledger, extensive review of related regulations, systems, and governance is necessary."

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