South Korea could be joining the growing list of countries formally experimenting with a central bank digital currency (CBDC) in the coming months following the release of a new payment report.
The Bank of Korea (BOK) Payment and Settlement Systems Report, released in mid-July, disclosed plans for introducing a CBDC into the financial system. The report explored the potential of a retail and wholesale CBDC and its use alongside already established payment platforms.
The central bank is keen on exploring cross-border payments with the CBDC and even wider use cases stemming from the use of smart contracts. The banking regulators noted that it would deploy near-field communication (NFC) technology for offline payments to ensure financial inclusion.
The BOK has dabbled in CBDC studies in the past with multi-system CDBC experiments carried out in 2022 in collaboration with financial institutions. Going forward, the central bank noted that future experiments will involve non-bank financial institutions (NBFIs) and fintech firms within the country.
A core focus for the BOK is to identify the CBDC system with “minimal adverse impact on monetary policy” while reaping the benefits from its launch.
“By continuously conducting research into the technical and institutional requirements and the impact of the monetary system, the BoK will further solidify the foundation of any potential introduction of a CBDC in the future,” read the report.
The central bank linked 14 commercial banks in its simulated CBDC system in a study to test the viability of a wholesale retail payment. Handling over 2,000 transactions per second, the BOK noted that the system showed promise for a full-scale rollout but was plagued by speed issues when used at maximum capacity.
The system involved leveraging a zero-knowledge proof framework for privacy, but it remains unclear if the central bank will adopt the framework or experiment with another system. Seeking to learn from pioneering nations, the BOK says it will increase its participation in the CBDC developments in other countries.
“To enhance the public’s understanding of CBDCs, the BOK will step up its external communications on related topics through diverse public relations channels,” it noted.
Heated race for CBDCs
Around 100 central banks have indicated a desire to launch CBDCs in the future, with developing countries leading the charge. Experts opine that before the end of the decade, up to 15 nations will roll out their CBDCs for public use.
China’s digital yuan has emerged as the most-anticipated CBDC following a robust pilot spanning multiple cities. Russia’s digital ruble pilot is expected to take a hurried approach, with the country probing new ways to circumnavigate existing sanctions.
The International Monetary Fund (IMF) and the Bank for International Settlements (BIS) have released technical standards to ensure uniformity among central banks inching toward the launch of their CBDCs.
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: Blockchain provides perfect foundation for CBDC
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