As the world rapidly embarks on a modern technological revolution, a rising concern is the unprecedented digitalization and transformative practices of money. Entering into the era of the New Economy, the advances of the digital economy will presumably allow a decisive method of transactions universally. Adapting to the technological revolution and rapid digitalization has challenged many central banks, including South Korea. The Bank of Korea, the central bank of South Korea, has decided to meet the growing demand and adapt to the changes brought by the digitization economy. South Korea’s government confirmed its plans to implement a central bank digital currency (CBDC) in three test regions, not including the capital Seoul.
The purpose of the test regions is to pilot and experiment with payments and distribution to the public and to secure businesses that would accept payments via CBCD. The CBCD will be equivalent in value to the state currency, divided into wholesale CBDC for institutions and retail for individuals and daily use. It is scheduled to take place by the end of 2023 likely in Jeju, Busan, or Incheon by the Bank of Korea, the nation’s Financial Services Commission, and the Financial Supervisory Service. The pilot will be primarily based on wholesale CBDCs which means primarily for the use of financial institutions for interbank settlements rather than everyday transactions. Retail testing is expected to begin in the following year, 2024, on a limited scale for individual users.
The Bank of Korea has an advanced financial institution due to its financial accessibility and well-developed payment systems. However, completely transitioning into a world without fiat money and into a world of digital currencies and cryptocurrencies has its trade-offs. The Bank of Korea’s research highlights the positive perspective on how CBCD can address future challenges. Korea already has a sophisticated fast payment system along with ownership of bank accounts being one of the highest in the world at 95% of its population. Digital currency is believed to not completely disrupt the system in place. The innovation in the financial sector is accelerating the advancements and the ability to implement digital currencies nationwide
Digital currencies and their respective markets are continuing to develop and without change, digital currency will become very disruptive to the world economies. Financial institutions and banking systems have to evolve and transition parallelly because economies will never be the same again. This is challenging the traditional paradigm of governments and banking institutions but opens doors to the new era of banking.
Written by: Community Outreach Intern, Kiana Flak