South Korea is launching a central bank digital currency (CBDC) pilot program, according to a n announcement today.
Led by the country’s central bank, the Bank of Korea (BOK), the objective is to study and establish the necessary technical infrastructure required for a CBDC.
“This project is designed as a collaborative effort involving both the public and private sectors, with participation from the BOK, FSC [Financial Services Commission], FSS [Financial Supervisory Service], and commercial banks,” the press release said.
Details of South Korea’s CBDC Pilot
The primary goal of this CBDC initiative is to explore the potential of wholesale CBDCs in the country’s financial ecosystem. Participating banks will tokenise their deposits, which will then circulate within a network jointly overseen by BOK, FSC, and FSS.
While the initial phase is tailored towards wholesale CBDCs, the program will also test retail CBDCs. The live testing of the retail CBDC is expected to commence after the main system is launched, which should be by the end of 2024.
The Bank for International Settlements’ (BIS) “has actively supported the project”, according to the press release. It assisted South Korea with the research, design, and developmental processes of the proposed digital currency network.
The BOK has confirmed its intention to continue the technical collaboration with the BIS.
Future steps for South Korea’s CBDC
Though this pilot is a significant step, the BOK emphasises that it doesn’t guarantee a full-fledged CBDC implementation in the country.
It added that the ongoing project is merely a step in its research to find a CBDC model that aligns with South Korea’s unique economic and financial landscape.
However, the first deputy governor of the FSS Lee Myung-soon, commented on the project’s significance, stating: “This test, building upon past achievements, represents a significant step towards creating a prototype for the future monetary system.”
Moving forwards, the project will now form a cooperative working group, composed of representatives from the BOK, FSC, FSS, and the Ministry of Economy and Finance (MOEF).
CBDCs gain global traction
With this move, South Korea joins the list of countries venturing into CBDC pilot programs.
Recently, the BIS collaborated with the central banks of France, Singapore, and Switzerland to conduct a trial for cross-border trading using wholesale CBDCs. Named Project Mariana, this trial involved mock versions of the euro, Singapore dollar, and Swiss franc CBDCs.
These digital currencies were traded among fictitious financial institutions using a shared token standard on a public blockchain, ensuring efficient CBDC transactions.
The outcomes of Project Mariana indicated that cross-border CBDC trades are feasible. Cecilia Skingsley, who leads the BIS Innovation Hub, shared that the project showcased the potential of exchanging wholesale CBDCs internationally using new methods like automated market makers (AMM).
Following this, central banks in the Euro zone are now gearing up to unveil their strategies for a wholesale CBDC. The countries are now looking to update and modernise how financial institutions handle securities and foreign exchange operations.
