BOK kicks off pilot program for digital currency

South Korea’s central bank said Monday that it has launched a pilot program for a central bank-issued digital currency.

“We do not see the immediate need to issue a digital currency in the near future, due to the considerable level of cash demands here and the relatively stable payment market operations,” the Bank of Korea said in a release.

“But we should be able to make responsive moves, should environments change drastically at any time, so we shall undertake technical research as well as a legal review.”

Under the 22-month program, the BOK will work on preparatory steps such as technical checkups, system design, process analysis and consulting until the end of this year, and kick off the actual pilot operations next year, officials said.

Central bank digital currency, or CBDC, differs from virtual currency and cryptocurrency as it is established by a state’s monetary authorities.

Just like conventional paper currency, CBDC serves as a means of payment and is uniquely identifiable to prevent counterfeiting.

On the previous day, the BOK had issued a monetary trend report observing the reduced volume of cash usage and expanded digital payments amid the ongoing novel coronavirus spread.

Citing examples in key economies, the report added that such a trend could add momentum to the introduction of CBDC.

In February this year, Seoul’s central bank launched an exclusive research and engineering team to work on CBDC. It thus became the seventh central bank around the world to officially show its dedication to the issue, following Canada, Britain, Japan, the European Union, Sweden and Switzerland.

The US, which had previously refrained from CBDC issuance, has recently switched positions, according to the BOK.

“Gov. Lee Ju-yeol has requested the US Federal Reserve for cooperation in CBDC research and Chair Jerome Powell gave positive responses,” the BOK said.

By Bae Hyun-jung (tellme@heraldcorp.com)