Bank of Korea to Test Central Bank Digital Currency

The Bank of Korea (BOK), South Korea's central bank, has unveiled plans to initiate a Central Bank Digital Currency (CBDC) pilot in 2024. 

Between September and October 2024, the BOK plans to invite 100,000 Korean citizens to participate in the CBDC pilot. This experimental period will extend over three months, offering a glimpse into the potential of CBDCs in real-world scenarios.

In a collaborative effort, the Bank of Korea will partner with financial regulators, namely the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), to jointly oversee the pilot program. This multidimensional approach reflects the comprehensive evaluation the BOK is aiming for:

Tokenized Transactions:

During the pilot, participants—approximately 0.2% of the country's population—will use deposit tokens issued by commercial banks in the form of CBDCs. The primary focus will be on enabling these tokens for purchasing goods, with strict limitations on other functionalities such as remittance.

Restricted Usage:

Participants will have the ability to leverage CBDCs exclusively for payment transactions, devoid of options to store, exchange, or transfer them to other users. This measured approach aligns with the goal of assessing the feasibility and effectiveness of CBDC issuance and distribution.

In addition to involving private banks and public institutions, the BOK's CBDC pilot will integrate with the Korea Exchange to test the digital currency in a simulation system for carbon emissions trading. This step is reportedly designed to explore the viability of delivery versus payment transactions.

The BOK sees CBDCs as a potential solution to challenges inherent in existing government-issued grant systems. Issues like high transaction fees, slow settlement processes, and fraud concerns could find resolution through the implementation of this digital currency.