The Bank of Korea (BOK) has recently announced its plans to test real-world Central Bank Digital Currency (CBDC) transactions with 100,000 South Korean citizens next year. This move by the central bank comes in response to the rapid progress of China’s digital yuan pilot, which has prompted the BOK to fast-track its own CBDC project.
Testing the Digital Won
The BOK has set the fourth quarter of the next financial year as the timeframe for the digital won test. To facilitate this, the central bank will collaborate with partner banks to identify suitable customers for its first digital KRW test group. However, it is important to note that the BOK has not made a final decision on whether to issue a CBDC, as South Korean lawmakers must have the ultimate say in this matter.
“The BOK says that it will initially focus on the issuance of CBDC ‘digital vouchers’ in the payments sphere. These could include, for instance, CBDC-powered childcare vouchers that can be redeemed at daycare centers.”
– Newsway
The BOK aims to prioritize CBDC usability in the payments sector by introducing digital vouchers that can be distributed by commercial banks to approved customers. These vouchers may have specific purposes, such as childcare payments, and can only be redeemed at authorized centers. The focus on “CBDC usability” will allow the central bank to understand the practical applications and potential benefits of implementing a digital currency.
Paving the Way for CBDC
During the pilot phase, the BOK does not intend to authorize real-world peer-to-peer (P2P) payments between individuals, except for testing purposes. Instead, partner banks, merchants, and service providers will continue to operate within a regulatory “sandbox” environment, ensuring a controlled and secure testing environment.
To ensure a comprehensive and well-regulated pilot, the BOK will collaborate with the Financial Services Commission and the Financial Supervisory Service, which are the country’s top financial regulators. The central bank also plans to engage with related organizations to review and update relevant laws before commencing the pilot.
In April, lawmakers in South Korea introduced legislation to establish a legal distinction between CBDCs and cryptocurrencies, solidifying the framework for digital currencies and providing clarity for future regulations and policies.
