Bank of Korea (BOK) Governor Rhee Chang-yong has called on global banking regulators to hasten the development of central bank digital currencies (CBDCs).
Speaking at a financial conference in Seoul, Rhee disclosed that central banks must roll out retail CBDC offerings to halt the widespread adoption of stablecoins. The central bank executive noted that stablecoins pose significant risks to global financial stability, given the absence of crystal-clear regulations.
Rhee cited the high-profile stablecoin collapses of 2022, particularly the TerraUSD (UST) de-pegging that wiped off billions of investors’ funds. The banking regulator pointed to the contagion effects of UST’s collapse into mainstream finance as part of the reasons central banks threw their weight behind retail CBDCs.
South Korea’s central bank hit the ground running in early 2023 with preliminary studies for its CBDC, reportedly bolstering its staff strength to handle incoming pilots. In one report, BOK hinted at employing a phased approach by launching a pilot in the three cities of Jeju, Busan, and Incheon.
In November, the central bank confirmed that it will formally launch a retail CBDC pilot in 2024 with 100,000 participants. The BOK will leverage the expertise of the Bank for International Settlements (BIS) for technical direction, signing a memorandum of understanding with Italy’s central bank for CBDC collaboration, according to an official disclosure by Banca d’Italia.
“Following consultations with relevant organizations and a review of related laws, the pilot project will be conducted first in the fourth quarter of 2024,” said a BOK spokesperson. “The possibility of conducting separate pilots will be considered as well if banks propose new individual projects.”
Available reports indicate that the BOK’s attempt at introducing a retail CBDC will focus on several use cases in cross-border payment functionality, offline capabilities, and programmable payments to halt the advance of stablecoins.
Rhee’s comment resonates with previous statements by European Central Bank executives calling for a unified effort to stifle stablecoin adoption. Deputy Governor of the Banque de France, Denis Beau, remarked that central banks should pursue CBDCs with tokenization
support or risk losing relevance to stablecoin issuers.
Exploring stablecoin alternatives
Apart from CBDCs, financial institutions in South Korea are exploring several alternatives to stablecoins, including certificate of deposit (CD) tokens. A report from Woori Bank has already predicted that CD tokens can replace traditional bank deposits without the risk of significant economic disruptions.
“CD tokens are perceived as stable from the banks’ perspective since they do not differ significantly from the current system,” stated the report.
The report pointed to the ability of CD tokens to be interoperable with CBDCs as part of the reasons for their preference for the asset class.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: CBDCs are more than just digital money
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