South Korea is set to launch a groundbreaking pilot program involving its Central Bank Digital Currency (CBDC), with 100,000 citizens participating in a real-world test of digital currency transactions. This initiative, announced by the Bank of Korea (BOK) along with the Financial Services Commission and Financial Supervisory Service, follows a visit from Agustin Carstens, general manager of the Bank for International Settlements, to the BOK.
The upcoming pilot, an expansion of the central bank’s initial plans revealed in October, aims to explore the practical use of CBDCs in daily transactions. In this trial, selected participants will receive deposit tokens issued by commercial banks, which can be used like vouchers in various stores. The recruitment for participants is scheduled to begin around September to October of the next year, with the program running for three months.
The BOK has identified several advantages of this digital currency system over traditional voucher methods, especially those used during the Covid-19 pandemic and for government-issued childcare grants. Benefits include lower transaction fees, faster settlement processes, improved post-transaction verification, and reduced risks of fraud.
However, the use of these digital currencies will be restricted to specific payment purposes, with personal remittances and other uses not allowed under the current framework of the pilot project. This limitation is part of a broader effort to assess the efficiency and viability of these new financial instruments in a controlled environment.
Additionally, the pilot will involve technological experiments to assess the practicality of issuing and circulating CBDCs. One such experiment includes a collaboration with the Korea Exchange, the country’s primary securities exchange operator. This test will integrate the CBDC into a simulation system for carbon emissions trading, evaluating the feasibility of transactions between carbon emission rights and the payment tokens.
The BOK has indicated that the pilot project will commence in the fourth quarter of 2024, following consultations with relevant organizations and a review of related laws. The possibility of conducting additional pilots based on individual project proposals from banks is also under consideration.
The initiative, referred to as the “digital won” by Carstens during his meeting with BOK governor Rhee Chang-yong, represents a significant step towards embracing a future monetary system aligned with digital innovation and efficiency.
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