Bitcoin, Litecoin, and XRP, etc. various kinds of digital money has issued everywhere. Central Bank Digital money is one of the hot topics as well in the digital transformation. Since South Korea is tech leader, its government has planned to try Central Bank Digital Currency project.
The Bank of Korea (BOK) which is the center of the financial head spot in South Korea announced in May 2021 their intent to launch CBDC simulation testing for technical feasibility testing of basic functions and applicability. The object of this procedure is first to test if CBDC works as a currency, and then plan for commercial use. The testing process started in 23th, August 2021 and continue to the end of June 2022. There is no time plan for commercialization. The budget for the testing is 5 billion KRW (approx. 37 million SEK). BOK reported in late July that they had picked the company Ground X as preferred bidder for technical partner, with Naver remaining positive for another chance to bid. Ground X is a subsidiary to Kakao, that launched its own blockchain Klaytn in 2018, on which it stores and verifies unlisted investments as non-fungible tokens.
As a background of Fintech environment in South Korea, its payment market is complex and intertwined, involving dominant private banks, card corps, payment gateways and a growing and innovative Fintech industry. An unnamed “financial expert” argue that e.g. the Chinese market is not a good comparison to the South Korean, as it has fewer actors acting on a monopoly market. If CBDC is implemented in South Korea, there is a risk for conflicts and struggle between these actors. According to this expert, representing an industry view, a CBDC from the BOK will only be feasible for supporting government’s policies such as in disaster assistance.
When it comes to challenges for the project, it is not likely there will be barriers in South Korea in a technical sense. South Korea have a ubiquitous digital infrastructure with high capacity and among the most connected population in the world.
Besides the simulation testing project about CBDC, the bank of Korea has recruited prominent legal advisors to publish a paper on legal issues and revision related to CBDC. As a legal consideration for the future, there are a few things necessary to consider. It includes necessity of establishing technical systems for withdrawal, forceful execution, etc. for criminals, and how to deal with criminality relating to CBDC, execute the law, and protect vulnerable groups in technology.
As a well-prepared CBDC project, considering diverse technical, legal, and societal aspects, we look forward to the outcome of South Korean’s CBDC Project in June next year and hope it will open the door as a steppingstone in continued financial digital Transformation.
Written by Anders Hektor and Yeji Hong