The use of blockchain technology and cryptocurrencies has moved far beyond just private industries, and it is disrupting the public sector as well. Ever since China made the news with its state-backed cryptocurrency, many jurisdictions have followed. The market for Central Bank Digital Currencies (CBDCs) is heated up at the moment with most of the banks around the world either piloting a CBDC project or researching its use cases.
The latest to start a pilot program on CBDCs is the Bank of Korea, South Korea’s central bank. According to an announcement on Aril 6, the central bank started the program last month, and it is set to run for 22 months until December 2021.
The program would identify the technological and legal challenges involved to create and deploy a state-backed cryptocurrency. Technical challenges include the design of the cryptocurrency, the method with which it would operate, and the feasibility of blockchain technology in this area.
The legal part would be to analyze expected legal issues when introducing CBDC and accordingly prepare a specific amendment plan for the Bank of Korea Act.
The road map for the program:
- CBDC design and requirements definition: 5 months (March 2020 – July 2020)
- Technology review: 5 months (April 2020 – August 2020)
- Business process analysis and consulting: 4 months (September 2020 – December 2020)
- CBDC pilot system construction and testing: 12 months (January 2021 – December 2021)
However, the announcement stressed on the fact that the bank doesn’t deem it a necessity to deploy a CBDC in South Korea immediately. Instead, the central bank wants to be prepared in case the digital Won must be launched:
“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 first hints about Bank of Korea working on digital currencies came back December 2019, when it announced that it was hiring experts to study CBDCs and analyze the digital currency initiatives of other nations. Last month, the nation made the headlines as it legalized cryptocurrencies.
CBDC trend on the rise
Central banks all over the world are now analyzing the idea behind the issuance of digital currencies. Last week saw the French central bank, the Bank of France, announce its testing phase. The bank has started an experimental program to study how CBDCs could replace the traditional interbank settlement and identify the various benefits and risks of implementing a CDBC based system.
Furthermore, the Bank of International Settlements (BIS) published a report on April 3, stating that the general attitude towards the use of physical currency has changed in response to the warning from the World Health Organization regarding physical currencies being a carrier for the deadly COVID-19 virus. BIS noted that this distaste for physical money could fuel the transition towards CBDCs.