[Photo provided by Bank of Korea]
South Korea will join a handful of other countries like Sweden, China and the U.K. to set the grounds for legitimate digital currency option.
The BOK said Wednesday it has completed the preliminary design and underlying technologies for a system on the issuance and circulation of its central bank digital currency (CBDC) in July and moved onto the next stage of exploring the system with outside expertise. It hopes to test the system in a controlled environment next year.
The central bank digital currency would be the digital form of fiat money issued by monetary authorities like central banks and distributed via commercial banks. This is different from cryptocurrencies like Bitcoin that are not issued by the state or legitimate reserve and settlement deposits.
“The CBDC system would virtually be the same as having cash in circulation,” a BOK official said.
CBDC has been tested mainly in developing countries as a way to enhance their financial inclusiveness. But it has recently been adopted by countries including Sweden and China, which have been stepping up preparations for a cashless society.
In January this year, the central banks of six entities, including Sweden, Canada, Britain, Japan, the European Union (EU) and Switzerland, came together to form the CBDC Research Group.
The BOK said it has decided to study the potential of CBDC to preemptively respond to technological changes in the payment environment. It has been reviewing technical and legal requirements for the new system.
During the consulting period, which is the second stages of its CBDC project, the BOK will study the design and format of CBD and outline the implementation plan for next year.
Testing would be in the form of a public-private partnership, with the BOK in charge of CBDC issuance and private institutions tasked with distribution.
Since there are limitations to the BOK directly issuing and distributing CBDC to individuals or companies, it would turn to financial institutions as intermediaries in the same way it circulates cash.
The CBDC ledger would be managed in a blockchain system that would record the current status of CBDC and transaction details.
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