South Korea’s plans for a central bank digital currency (CBDC) is moving ahead after the country’s banking regulators announced that the pilot will start in 2024.
According to a report by The Korea Times, South Korea’s retail CBDC pilot will rely on 100,000 residents as participants in real-world payment scenarios. The Bank of Korea (BOK) revealed that the pilot will lean on commercial banks to select participants for the study, with a proposed timeline for the last quarter of 2024.
The announcement comes on the heels of a visit by Agustin Carstens, General Manager of the Bank for International Settlements (BIS), to the BOK. Carstens met with representatives of the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), hinting at interagency collaboration in the rollout for a digital won.
“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 one BOK official. “The possibility of conducting separate pilots will be considered as well if banks propose new individual projects.”
South Korea is eyeing a number of use cases for its proposed CBDC, including programmable payments for government grants and fixing existing voucher systems. It remains unclear if the BOK will be pursuing cross-border payment functionality, but experts point to the meeting with the BIS as a potential sign for such an integration.
“However, participants will be restricted to using the currency solely for its designated purpose of payment,” read the report. “Other uses, including personal remittance, will not be permitted at this time.”
Sources disclose that the BOK will use the pilot to test technical standards for the CBDC before a mainstream rollout. In the months leading to the start of the pilot, it is widely expected that a legal framework will be established to give the study validity to avoid potential regulatory issues.
The central bank and the Korea Exchange are already working on linking the CBDC in a simulation system for carbon emissions with the pilot expected to last for three months.
Limiting the studies to three cities
In an August report, the BOK disclosed that plans for a CBDC pilot will be geo-restricted to three major cities, excluding the capital of Seoul. The selected cities include Jeju, Busan, and Incheon, chosen for their large population, with the central bank confirming that the initial trio will be expanded to include more cities.
Ahead of the pilot, the BOK has embarked on a hiring spree to support its ambitions but says it is well aware of the risks associated with rolling out a CBDC.
“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 industry player. “A large number of related personnel, including large companies, are on the move.”
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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