In December 2019, South Korea revealed that it was planning to create a task force to research a central bank digital currency. It would appear that the government followed through on this plan as it was recently announced that the central bank would launch a pilot CBDC program.
South Korea and the Crypto Sector
South Korea is one of the largest crypto markets in the world. Despite this, there was no regulation for the crypto sector. Consequently, this had caused a lot of confusion when it came to the issue of taxing the crypto sector. However, all that was recently changed after the nation’s national parliament passed a comprehensive law for the crypto sector. Many in the crypto industry have hailed the progressive law as being one of the most far-reaching laws passed by any country concerning the crypto sector.
South Korea’s Pilot Central Bank Digital Currency
The central bank of South Korea put out a statement on Monday announcing the launch of a pilot CBDC program. However, the announcement makes it clear that the Bank of Korea does not intend to launch a digital version of the national currency once the pilot program wraps up. Instead, it will use the pilot program to study the limitations that would come with the implementation of a CBDC.
According to the announcement, the pilot program has been running since March 2020 and it will last until December 2021. Through the pilot CBDC program, the central bank will assess the technical aspects of a CBDC issuance while also evaluating the legal challenges that would come with such issuance. The legal evaluation will entail assessing what changes would need to be made to the Bank of Korea Act for the central bank to issue a CBDC.
The program will run for 22 months and it will be divided into four stages. The first stage will run for five months, the CBDC will define the design and requirements that a CBDC must fulfill. The second schedule will involve a review of the underlying blockchain technology. In the third stage, the central bank will conduct a business process analysis while also engaging in consultations. The fourth stage will be in 2021 and it will entail the construction of the CBDC pilot program and a review of how it is working.
Why the Launch
The bank has made it clear that there is no immediate desire to launch a CBDC. However, it notes that various central banks around the world have already established CBDC working groups. As a result, it wants to be prepared for changing marketing conditions in case the demand for a CBDC rises in South Korea.
South Korea is not the only nation looking into the possibility of issuing a CBDC, Sweden has already launched a pilot program for a CBDC. Similarly, the country has said that the pilot program will not lead to the launch of a CBDC. Instead, it is just researching a CBDC in case market conditions change.
In addition, the Korean Government has shown a lot of interest in FinTech technology. The potential move into a digital currency can be related to the massive growth the country has seen in mobile payments. It's worth noting that South Korea carries the most market share in terms of adults owning smartphones. According to a recent study, 95% of South Korean adults owned a smartphone. FinTech players have capitalized on this opportunities and have begun to revolutionize mobile payments in the region. With the evolution of FinTech in South Korea, it's evident that the banking system now sees a future where money is going completely digital.
While there is a lot of research into the issuance of a CBDC, no major economy has been brave enough to launch one. However, the most likely candidate at this point is China, which some financial experts have predicted might launch a CBDC this year.
Image Source: Shutterstock