South Korea’s central bank completes first phase of CBDC testing

The Bank of Korea has successfully completed pilot testing of issuing and distributing a digital currency (CBDC), according to The Korea Herald, citing the institution.

The tests, which concluded in December 2021, marked the first phase of a two-stage program. The central bank plans to complete the second phase of testing by June.

Subsequently, the regulator will begin discussions on the actual launch and commercialisation of the asset. In the meantime, the central bank will expand the scale of testing with the participation of financial institutions.

The first phase involved testing the basic functions of the digital currency, including creation, issuance and distribution in a cloud-based virtual environment.

In the second phase, based on the results obtained, the central bank will study the technology required for the asset’s actual use — online payments, offline payments, cross-border transfers and commerce.

In the report, the Bank of Korea expressed concern about the side effects that the global financial market would face upon a full launch of sovereign digital currencies. The regulator believes that its monetary policy would lose influence, while the role of commercial banks would also diminish.

The regulator says that for a full rollout of the digital currency, major economies will need “a long time” and not all will adopt CBDCs.

“Central banks in the largest economies hold that digital currencies will replace cash rather than bank deposits,” the report says.

The Bank of Korea added that it is considering “multiple measures” intended to minimise the negative impact of CBDC on financial stability.

As noted, the central bank transitioned to the technical phase of CBDC testing in August 2021. Its partner was Ground X — a subsidiary of Kakao.

In previous stages, the Bank studied the legal aspects of issuing a digital currency. The regulator announced the CBDC test program in April 2020.

Subscribe to ForkLog News on Twitter.