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The Bank of Korea has concluded the first stage of its central bank digital currency (CBDC) simulation project and is ready to move on to new innovations, it announced last week.
The groundwork for South Korea’s CBDC testing was a success, its central bank has said, as it shifts towards tackling offline payments and data privacy.
The Bank of Korea has been working on setting up a CBDC pilot project since at least 2020, when plans first became public.
Additionally, last July, the Bank of Korea chose to partner with Ground X, a blockchain subsidiary of the country’s technology giant Kakao, to build the CBDC pilot platform.
The first phase tested the basic functions of a CBDC including manufacturing, issuing and distribution. This was done in a simulated environment and the central bank’s CBDC task force concluded that the CBDC “works normally” under test conditions.
In a separate statement, the central bank said that more experiments are needed to confirm if the CBDC would work as effectively in a real environment.
After the second phase is completed this June, the bank plans to assess the project and continue usability experiments in cooperation with the East Asian state’s financial institutions.
According to the Atlantic Council, a total of 87 nations, which combined are equivalent to more than 90 percent of global GDP, are actively exploring CBDC.
Many of the first examples of fully issued CBDC have largely targeted retail use cases, including the Sand Dollar in the Bahamas, and the e-Naira in Nigeria. China also looks close to full rollout, following extensive trials with its e-CNY retail CBDC.
However, wholesale CBDCs also represent a significant opportunity that many central banks are looking to take advantage of. Payments Canada recently put out a bulletin comparing wholesale use cases and different approaches being taken around the world. Countries that are in the pilot stages of their wholesale CBDC project include Singapore, Hong Kong and Thailand.
Meanwhile, the Banque de France and the Swiss National Bank (SNB) are at the proof of concept stage with their wholesale projects.
Although French citizens are likely to have access to a retail CBDC via the European Central Bank’s digital euro concept, the SNB has so far come out against such a possibility, believing that digital currency innovation is a matter for the private sector.
Koreans embracing crypto
As the central bank considers its options around a CBDC, South Koreans' engagement with private digital currencies continues to gather momentum among consumers.
Around 10 percent of the country’s population has invested in the cryptocurrency market, according to data from 2021. Meanwhile, the country’s largest cryptocurrency exchange, UpBit, has 8.3m registered users.
Regulators have kept their fingers on the pulse with this and, as of 2021, all crypto service providers must transform their anti-money laundering/know your customer systems and register with the Korean financial regulators before they start their activity.
