The Bank of Korea (BoK) to Test Wholesale Central Bank Digital Currency (CBDC)
The Bank of Korea (BoK) has announced plans to conduct a test of wholesale central bank digital currency (CBDC) in collaboration with the Bank for International Settlements (BIS) and other institutions. The experiment will focus on the feasibility of a future monetary system based on wholesale CBDCs.
The pilot program will assess whether a wholesale CBDC can serve as a settlement asset for commercial bank tokenized deposits. It will also explore the programmability of tokenized deposits.
Participation of South Korean Financial Regulators
The initiative will involve BIS researchers working alongside the BoK, with oversight provided by South Korean financial regulators, the Financial Services Commission (FSC), and the Financial Supervisory Service (FSS). According to FSS First Deputy Governor Lee Myung-soon, this test is an important step towards creating a prototype for the future monetary system.
While the BoK has previously conducted trials for retail CBDCs, it determined that a retail CBDC is not currently necessary due to the efficiency of the Korean payment landscape. However, the central bank remains open to exploring the technology for potential future use.
Difference Between Wholesale and Retail CBDCs
The announcement confirms that the BoK is willing to continue exploring CBDC technology. Wholesale and retail CBDCs differ in their target audience and use cases, with wholesale CBDCs catering to financial institutions and retail CBDCs being accessible to the general public.
BIS’s Unified Ledger System
The BoK’s wholesale CBDC pilot coincides with the development of the BIS’s unified ledger concept. This concept aims to integrate CBDCs, digital money from commercial banks, and tokenized assets into a single programmable network. The use of smart contracts in the unified ledger system can eliminate free-riding and contribute to the stability of bank funding.
The unified ledger concept also has the potential to transform supply chain financing by addressing issues such as delayed payments and pre-production financing for suppliers. Real-time information incorporated into smart contracts can provide greater transparency and efficiency in supply chain financing.
Hot Take: Exploring Wholesale CBDCs for Future Monetary Systems
The Bank of Korea’s collaboration with the Bank for International Settlements and other institutions to test wholesale central bank digital currency (CBDC) highlights the ongoing exploration of CBDC technology for potential future use. By focusing on the feasibility of a future monetary system built upon wholesale CBDCs, this pilot program aims to assess the viability of using a wholesale CBDC as a settlement asset for commercial bank tokenized deposits. Additionally, the programmability of tokenized deposits will be explored. This initiative reflects the commitment of South Korean financial regulators to stay at the forefront of technological advancements in the financial sector.
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