Last week the Bank of Korea announced plans to pilot a Central Bank Digital Currency (CBDC). The Bank set out a schedule for the pilot despite having rejected the idea of a CBDC just four months ago.
Talking to the Korea Times on Monday, an official explained: “The U.S. and Japan had had no plans to issue a CBDC in the near future, but they changed their stance recently to enhance research in the emerging area.”
The Bank’s announcement mentioned the ‘market expansion of the private sector is difficult to predict’ in the realm of payments. This may have been an indirect reference to Facebook’s Libra digital currency, but also Korea’s social network Kakao launched the Klaytn blockchain.
A few months ago, an official told the same outlet: “Our view is that most Korean people do not feel difficulty in making transactions with current payment methods. Under the circumstance, we do not have to be in a hurry to catch up with the latest trend whose security and stability have not been confirmed.”
But a year ago, the Bank published a paper exploring the financial stability impact of a CBDC.
Last week’s announcement outlined a 22 month schedule aiming to finish the pilot by the end of 2021. The first phase to July 2020 will define the requirements of a CBDC, which is unique to every country. Simultaneously there will be a review of technologies, and the bank has not decided whether or not to use distributed ledger technologies (DLT). After this, there will be business process analysis and consulting through to the end of the year. And then, during 2021, the pilot will be developed and tested.
The paper reviewed the progress made by Sweden’s Riksbank, which is one of the central banks that has been exploring the topic for a long time. Riksbank also recently announced a new set of pilots with Accenture. Other CBDC initiatives mentioned were from China, the U.S. Federal Reserve, Japan, England, Canada and the EU.
Meanwhile, the Bank of Korea is also exploring blockchain for government bond settlement in real-time. On-chain delivery versus payment would ideally use a CBDC for the payment leg, though likely a wholesale CBDC rather than a general purpose one.