On October 4th, South Korea unveiled its initiation of a pilot program for a central bank digital currency (CBDC).
Today, South Korea announced the commencement of a pilot program for a central bank digital currency (CBDC). Spearheaded by the nation’s central bank, the Bank of Korea (BOK), the primary aim is to research and build the essential technical foundation needed for a CBDC.
“The project is formulated as a cooperative endeavor, involving both public and private sectors, with active engagement from the BOK, FSC [Financial Services Commission], FSS [Financial Supervisory Service], and commercial banks,” stated the press release.
South Korea’s CBDC pilot program has a primary objective to investigate the potential of wholesale CBDCs within the country’s financial landscape. In this initiative, participating banks will convert their deposits into tokenized form, and these tokens will circulate within a network jointly supervised by the Bank of Korea (BOK), the Financial Services Commission (FSC), and the Financial Supervisory Service (FSS).
While the initial phase is focused on wholesale CBDCs, the program will also include testing for retail CBDCs. The live testing of the retail CBDC is anticipated to begin once the core system is launched, which is expected to be by the end of 2024.
The Bank for International Settlements (BIS) has been actively involved in supporting this project, as indicated in the press release. The BIS has provided assistance to South Korea in researching, designing, and developing the proposed digital currency network.
The Bank of Korea has affirmed its commitment to maintaining technical collaboration with the BIS.
While the CBDC pilot marks a significant milestone, the Bank of Korea (BOK) underscores that it does not guarantee the full implementation of a CBDC in the country. The BOK clarifies that this ongoing project is part of its research efforts to identify a CBDC model that aligns with South Korea’s unique economic and financial landscape.
Nonetheless, Lee Myung-soon, the first deputy governor of the Financial Supervisory Service (FSS), emphasized the importance of the project, stating, “This test, building upon past achievements, represents a significant step towards creating a prototype for the future monetary system.”
Looking ahead, the project will establish a collaborative working group comprising representatives from the BOK, Financial Services Commission (FSC), Financial Supervisory Service (FSS), and the Ministry of Economy and Finance (MOEF).
South Korea’s entry into CBDC pilot programs reflects a global trend, with several countries exploring this digital currency avenue.
Notably, the Bank for International Settlements (BIS) partnered with central banks from France, Singapore, and Switzerland to initiate Project Mariana. This trial involved experimenting with wholesale CBDCs for cross-border trading, using simulated versions of the euro, Singapore dollar, and Swiss franc CBDCs. These digital currencies were exchanged among fictitious financial institutions utilizing a shared token standard on a public blockchain, demonstrating the efficiency of CBDC transactions.
The results from Project Mariana suggested that cross-border CBDC trading is indeed feasible. Cecilia Skingsley, who heads the BIS Innovation Hub, highlighted the potential for international exchange of wholesale CBDCs using innovative methods such as automated market makers (AMM).
As a result of these developments, central banks in the Eurozone are now preparing to unveil their strategies for implementing wholesale CBDCs. These countries are actively working to modernize the handling of securities and foreign exchange operations within financial institutions.
