South Korea takes the lead in CBDC innovation with pilot program

• The project’s aim is to assess the feasibility of a future monetary system based on “wholesale CBDCs.”
• This pilot program will involve the participation of private banks and public institutions.

South Korea has joined the growing list of countries embarking on central bank digital currency (CBDC) pilot programs.

On 4 October, the Bank of Korea (BOK), South Korea’s central bank, along with the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), jointly announced the launch of a CBDC pilot project. The project’s aim is to assess the feasibility of a future monetary system based on “wholesale CBDCs.”

This comprehensive pilot program will involve the participation of private banks and public institutions. Notably, the Bank for International Settlements (BIS) will provide expert technical support to ensure the success of the endeavor.

Also, the BOK’s pilot will encompass both retail and wholesale CBDCs.

Bank of Korea explores future monetary systems with retail and wholesale CBDCs

Banks will tokenize their deposits and circulate them within a network monitored by the BOK, the FSC, and the FSS. The entirety of the process will be within the scope of the wholesale CBDC experiment.

The pilot by itself is a significant step in CBDC exploration. However, it does not guarantee eventual implementation.

Lee Myung-soon, the first deputy governor of the FSS, emphasized the importance of the pilot in shaping the future monetary system. He stated,

“The BOK has persistently pursued technological research related to CBDC. This test, building upon past achievements, represents a significant step toward creating a prototype for the future monetary system.”

This move aligns with the global trend of exploring CBDCs as potential catalysts for cross-border payments.

Denis Beau, the first deputy governor at Banque de France, expressed similar sentiments on 3 September, describing CBDCs as “the catalyst for improving cross-border payments by enabling the build-up of a new international monetary system.”

With the participation of private banks, public institutions, and the support of the BIS, South Korea’s CBDC pilot project is poised to provide a comprehensive evaluation of the technical infrastructure required for CBDC implementation.

Additionally, this initiative is part of a broader global movement toward exploring the potential of digital currencies to revolutionize the way we conduct financial transactions and interact with the monetary system.