South Korea has launched a pilot program to assess the technical and legal ramifications of issuing a Central Bank Digital Currency (CBDC), the Bank of Korea (BOK) said in a press release on 6 April.
According to the announcement, the new pilot program will look into the technological and legal issues of replacing fiat cash with a digital equivalent, and will run for 22 months. The BOK seems to have moved away from its “wait-and-see approach” after other nations, such as Japan and the U.S., accelerated their plans for a CBDC.
A BOK official told The Korean Times on Monday:
“The U.S. and Japan had had no plans to issue a CBDC in the near future, but they changed their stance recently to enhance research in the emerging area. The BOK also decided to remain proactive in the rapid shift in payment environments here and abroad, so we are going to set up the CBDC pilot system and check technical and legal issues surrounding its introduction here.”
In the press release, South Korea’s central bank made it clear that while it has no immediate plans to introduce a digital currency in the country as of yet, it wishes to be prepared for such a move, should there be a shift in “domestic and external conditions”. The press release reads:
“The need to issue a CBDC in the near future still remains slim when considering the demand for cash that still exists, the competitive payment service market and high-level financial inclusion, but there is a need to be able to quickly take steps in case market conditions at home and abroad change rapidly.”
The pilot will have several phases, with the first one running for five months, until July 2020, and aiming to define the requirements and design of the CBDC. It will also overlap with a review of the technology needed to implement the digital currency, which will be conducted between April and August. Following the initial phase, the BOK will conduct an analysis of business processes, until the end of 2020, after which it will focus on building and testing the CBDC pilot system.
Back in February, Sweden’s Central Bank launched a pilot scheme to determine if its e-krona’s performance is sufficient and reliable. At the time, the bank said it will run the project in an “isolated test environment”, with participants playing out different scenarios for one year, until February 2021.