The Bank of Korea (BOK) is set to unveil its blueprint for a Central Bank Digital Currency (CBDC) in September, as the country aims to accelerate the development of its digital KRW. After successfully completing a CBDC interoperability-focused pilot, the BOK has made progress in linking its prototype digital won platform with commercial banking and e-payment applications. The bank is now preparing to announce plans for CBDC infrastructure construction and is collaborating closely with private sector partners.
To move forward with its CBDC plans, the BOK is requesting relevant legislation to be passed by the National Assembly. Additionally, the bank has engaged in discussions with top financial regulators in the country. The Financial Services Commission and the Financial Intelligence Unit are currently reviewing the BOK’s CBDC project to ensure there are no conflicts of interest. The establishment of a legal framework for the digital KRW will depend on the design of the BOK’s CBDC model and the applicable laws and regulations.
However, the bank still needs to gain approval from lawmakers to have the legal right to hold digital assets. Despite some pushback, especially due to concerns about consolidating power in the hands of the BOK, the government has promoted the use of contact-free payment channels, with a CBDC seen as a tool to achieve this. This led to initiatives such as cashless buses in Seoul, which started as a pilot project in October 2021 and has been expanded to other cities.
Public backlash and criticism from certain sectors have arisen. Although lawmakers and politicians have expressed their desire for a cashless society, some believe that granting too much power to the BOK could have negative consequences. Initially, the BOK had stated that it would not launch a CBDC because of the existing e-payment solutions in South Korea. However, recent events, including the impact of the coronavirus pandemic and the rapid progress of China’s digital yuan pilot, have prompted a change of heart.
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China’s advancements in the digital currency space, coupled with Tokyo’s efforts to develop its own digital yen, pressured Seoul to ensure it doesn’t fall behind in the technology race. South Korea, like Japan, is known for its focus on technological advancements and provides direct funding for private sector IT research and development endeavors. With over 90 nations already exploring the possibility of launching a CBDC, the BOK aims to stay at the forefront and expedite the launch of a digital won.
By unveiling its CBDC blueprint, the BOK seeks to present a comprehensive plan for the digital KRW, including the necessary infrastructure and regulations. This announcement will be a crucial step toward realizing South Korea’s digital currency ambitions. It represents the bank’s dedication to embracing financial innovation and adapting to the evolving digital landscape. With the support of private sector partners and regulatory bodies, the BOK can pave the way for a successful implementation of the digital won, facilitating secure and efficient digital transactions for the nation’s citizens.
