[Photo by Joint Press Corps]
South Korea’s central bank will begin testing a central bank digital currency (CBDC) with the public in the fourth quarter of 2024. The Bank of Korea (BOK) announced Thursday that it has prepared a detailed plan for the CBDC usability test in collaboration with the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS).
The BOK will conduct two tests, a real-world transaction test and a technical test in a virtual environment. The former will feature digital vouchers so that the public can experience the benefits of the new digital currency. Banks will issue deposit tokens with digital voucher functions, and the payment will be made when users purchase items with these deposit tokens.
Currently, support programs such as subsidies, gift certificates, and vouchers issued by the government and companies have high fees, require long and complicated settlement, and are limited in verifying fraudulent use.
But CBDC-based deposit tokens with digital voucher functionality could dramatically mitigate these setbacks. Automized data collection and verification, real-time payments, and payment conditions such as applicable locations and items will help minimize the involvement of private platforms acting as intermediaries.
Singapore’s digital training vouchers are a good example of CBDC success. The Monetary Authority of Singapore introduced CBDC-based digital vouchers to ensure that training subsidies are paid only to those who have completed the training, and it has greatly simplified the process of claiming, reviewing, approving, and paying for vouchers as well as eliminating fraudulent payments.
The Korean central bank, the FSC, and the FSS plan to determine the banks participating in the test in the third quarter of 2024 after consulting with relevant organizations and reviewing relevant laws.
Banks will accept applications to participate in the test from the public in September and October 2024, with the number of test participants limited to a maximum of 100,000.
The BOK will also conduct another test using technology experiments in a virtual environment to examine ways to build the future financial market infrastructure. In working with the Korea Exchange, the central bank plans to link the CBDC system with an external distributed ledger system to examine if payments for carbon credits and tokens issued for special purposes can be executed simultaneously without issues.
By Lim Young-sin and Choi Jieun
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