South Korea to Launch CBDC Test With 100,000 Citizens
The Bank of Korea (BOK) has announced plans to launch a pilot program. The program will allow 100,000 Korean citizens to utilize a central bank digital currency (CBDC) by late 2024.
The program comes on the heels of a visit from Agustin Carstens, general manager of the Bank for International Settlements. The current plans are an expansion of a previous CBDC initiative disclosed by the BOK in October, according to a recent report by The KoreaTimes.
Key Takeaways:
- 100,000 Korean citizens will test new central bank digital currency by late 2024
- Initiative backed by BOK, financial regulators, and banks to improve voucher schemes
- Aims to cut fees, speed settlements, enhance verification, and reduce fraud
- Use is limited to payments during the pilot phase
- BOK also testing CBDC integration with emissions trading platforms
- Program called “Digital Won” earned acclaim from global finance leaders
CBDC participants will be recruited in September 2024
The BOK will collaborate with the Financial Services Commission, Financial Supervisory Service, and commercial banks to distribute digital “deposit tokens” that can be used to purchase goods, similar to vouchers.
Participants will be selected and recruited by partnering banks starting in September–October 2024. Additionally, the pilot will run for three months.
Proponents argue that CBDCs have the potential to address longstanding challenges plaguing existing voucher programs in Korea. These include special COVID-19 grants and childcare subsidies provided by the government.
Additionally, it also includes high transaction fees, lagging settlement times, limited post-transaction verification capabilities, and vulnerability to fraudulent claims, according to the BOK.
However, usage will initially be restricted to payments only. Personal remittances and other applications will not be supported during the pilot phase.
In addition to testing real-world payment functionality, authorities plan to evaluate the feasibility and security of issuing and distributing CBDC through technological experimentation.
This includes an initiative between the BOK and Korea Exchange to simulate integration with a carbon emissions trading platform, enabling delivery-versus-payment transactions between emissions rights and digital currency.
The proposed CBDC pilot has been dubbed “Digital Won” and drew praise from Carstens during his meeting with BOK Governor Rhee Chang-yong earlier this week. Carstens lauded Korea’s proactive approach to developing next-generation financial infrastructure.
