The Bank of Korea (BOK) is moving closer toward a central bank digital currency (CBDC) pilot to test real-world applications. Still, it appears that the capital city of Seoul will not take part in the initial experiments.
The South Korean central bank is set to proceed with CBDC studies in three cities—Jeju, Busan, and Incheon. The report noted that the BOK is in talks with commercial banks in selected cities to participate in the CBDC pilot.
The CBDC pilot will be restricted geographically but non-residents will be allowed to interact with the offering in authorized locations.
“The CBDC electronic wallet (app) will allow not only local residents but also many unspecified civilians such as tourists to open,” said an official from a participating bank.
Commercial banks participating in the studies are reportedly selecting merchants to accept payment in the experimental CBDCs. Supermarkets and restaurants could reportedly form the bulk of merchants for the pilot, with pundits noting that onboarding retail users will be done in phases.
However, the central bank notes that it will pick one of the three cities to proceed with CBDC distribution at a public level. Pundits say that the BOK will select the city with the least number of eligible residents to reduce the burden of the central bank, putting Jeju in pole position with its 347,000 residents.
While plans for the CBDC appear solid on paper, the BOK is acutely aware of several challenges in its implementation. In 2022, results from preliminary tests were underwhelming as the central bank noted that payment performance was inferior to domestic micropayment service providers in South Korea.
Another challenge the central bank faces is the need for IT professionals to oversee its CBDC ambitions as it tries to put things in place to launch a private test in 2024.
“As the Bank of Korea is planning a large-scale retail payment system project soon, it is in need of an exceptionally large number of IT personnel,” said one IT professional. “A large number of related personnel, including large companies, are on the move.”
No going back now
With South Korea’s plan to launch a CBDC taking off, the government is keen on closing the gap with other regional first movers. The central bank included plans for a CBDC launch in its Payment and Settlement Systems Report released in July, eyeing retail and wholesale iterations.
The BOK says it will be proceeding with the CBDC with “minimal adverse impact on monetary policy,” hinting at a cautious approach toward their launch. The banking regulator noted that it would improve external communications with the public ahead of a full-scale CBDC launch.
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