South Korea plans to launch a central bank digital currency (CBDC) pilot program in 2024, including 100,000 selected citizens for the trial in the year’s 4th quarter.
The Bank of Korea (BOK) and financial authorities will jointly operate the pilot.
“The BOK, Financial Services Commission (FSC) and Financial Supervisory Service (FSS) announced the plans, following the visit of Agustin Carstens, general manager of the Bank for International Settlements, to the BOK on Thursday,” The Korea Times wrote.
“The plans are a developed version of their earlier announcement made in October, that disclosed the central bank’s intention to take real-world experiments on CBDC,” the outlet added.
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Under the pilot project, 100,000 selected individuals can purchase goods with deposit tokens issued by commercial banks in the form of CBDC, similar to using a voucher at the store. Selected commercial banks will recruit participants around September to October of the following year, and will continue the project for three months.
The BOK explained that the digital currencies have the potential to significantly address challenges with existing voucher systems, such as special grants during COVID-19 and childcare grants offered by the government. The challenges include high transaction fees, slow settlement processes, limitations of post-transaction verification and concerns over fraudulent claims.
However, participants will be restricted to using the currency solely for its designated purpose of payment. Other uses, including personal remittance, will not be permitted at this time.
Additionally, technological experiments will be conducted to evaluate the feasibility and effectiveness of issuing and distributing these new forms of financial products.
For instance, the BOK will collaborate with the Korea Exchange to integrate the CBDC into a simulation system for carbon emissions trading. This will include testing the feasibility of delivery versus payment transactions between carbon emissions rights and the payment tokens.
“Following consultations with relevant organizations and a review of related laws, the pilot project will be conducted first in the fourth quarter of 2024. The possibility of conducting separate pilots will be considered as well if banks propose new individual projects,” an official from the BOK said.
🚨🏦Daily CBDC Update🏦🚨
🇰🇷 The Bank of Korea (BoK) announced plans for a wholesale CBDC pilot in collaboration with the Bank for International Settlements (BIS); The concept of a "Tokenized voucher" is introduced, which restricts digital currency usage for specific purposes…
— Hotep Jesus (@HotepJesus) October 4, 2023
“Last month, South Korea’s central bank outlined its wholesale CBDC pilot plan to support tokenized deposits in commercial banks and explore new forms of financial products,” TechCrunch noted.
According to the outlet, Samsung will collaborate with the Bank of Korea on the CBDC pilot.
Samsung to collaborate with Bank of Korea on CBDC https://t.co/QQekJfSyGd
— ASADAL (@hwamool) December 10, 2023
The central bank is currently discussing selecting a city from the three potential city candidates in South Korea — Jeju, Busan and Incheon — as a test bed for piloting the CBDC, per a local media report released in August. Seoul, the capital of South Korea, is not included on the list.Advertisement
South Korea’s central bank, which has been working on CBDC pilots since 2020, completed two phases of pilot tests in 2021 and 2022 for its retail CBDC. It also ran simulations from July to November 2022, along with Korea Financial Telecommunications & Clearings Institute (KFTC) and 14 commercial banks. The Korean central bank partnered with a host of technology partners for the simulation projects, including Samsung Electronics, Ground X (a web3 subsidiary of Korea’s tech firm Kakao), ConsenSys, KPMG, Kakao Bank, Kakao Pay and more.
After the simulation, Samsung signed a memorandum of understanding with the Bank of Korea this May to conduct some research on digital currencies — these digital currencies could work with Samsung’s Galaxy phones and watches. Samsung’s offline CBDC technology, which uses near-field communication (NFC), allows contactless payments between devices when both sender and recipient are disconnected from the internet.