The Bank of Korea has announced plans to launch a pilot program for retail Central Bank Digital Currency (CBDC) in Q4 2024. The program will involve 100,000 selected South Korean citizens who will use CBDC tokens from commercial banks to make purchases. The aim is to address the challenges associated with current voucher systems.
According to the bank, this initiative is part of its broader efforts to explore innovative financial products and enhance transaction efficiency for individuals and businesses. The pilot program is a result of experimentation that began in 2020 in collaboration with financial institutions and tech companies such as Samsung, Ground X, and ConsenSys.
Central bank digital currencies (CBDCs) are digital versions of a country’s fiat currency, issued and regulated by the central bank. They are designed to provide secure and stable forms of digital money, with their value determined by the issuing central bank.
Central Bank Digital Currencies (CBDCs) differ from cryptocurrencies as they are issued and operated by the state, and their value remains stable. There are two main types of CBDCs: wholesale and retail. Wholesale CBDCs are primarily utilized by financial institutions, while retail CBDCs are used by consumers and businesses.
The Bank of Korea is conducting a pilot program for its retail CBDC to address issues like high transaction fees and slow processes in current voucher systems. As part of the plan, the pilot will be initiated in one of the following cities: Jeju, Busan, or Incheon.
Furthermore, in collaboration with the Bank for International Settlements, the bank is undertaking a wholesale CBDC pilot that focuses on the settlement and programmability of tokenized deposits from commercial banks.
In 2023, central bank digital currencies (CBDCs) continue to be an area of exploration and development for many countries. The International Monetary Fund (IMF) has observed that over 100 countries are in the exploration stage, with some, such as the Bahamas, Jamaica, and Nigeria, having already introduced CBDCs.
Central bankers in various countries, including Brazil, China, the euro area, India, and the United Kingdom, are leading the way in exploring and developing Central Bank Digital Currencies (CBDCs). The International Monetary Fund (IMF) has stressed that CBDCs have the potential to enhance payment systems and promote financial inclusion if designed properly. However, if not implemented with caution, they could also introduce risks.
The IMF advises countries to continue their careful and systematic exploration of CBDCs, adapting their initiatives by domestic and international developments.