Today the Bank of Korea shared details about its planned wholesale CBDC trials. It will involve two sets of digital won experiments. In one test, banks will issue tokenized deposits as programmable vouchers. Banks will use the wholesale central bank digital currency (CBDC) for interbank settlement. These trials will involve up to 100,000 people and plan to start in September or October next year.
A second set of tests is for a wholesale CBDC to settle financial transactions. The Korea Exchange will create a simulated carbon credit trading market. On the CBDC platform, the central bank will issue CBDC to specific banks in exchange for 100% collateral. The CBDC will then be bridged onto the carbon credit platform, where it will be used for settlement. While banks will participate, they will not be expected to operate nodes.
Tokenized deposits as vouchers
Circling back to the first test for vouchers, if this sounds a little similar to Singapore’s purpose bound money, that’s because the Monetary Authority of Singapore (MAS) and the Bank of Korea have been working together. The Bank of Korea contributed to the MAS purpose bound money paper.
One notable aspect is that end users will be able to hold tokenized deposits or vouchers issued by any bank.
The voucher test will be split into two. All the banks will participate in one of the trials. We’d imagine this might be for some government-based subsidy. Other trials will allow banks more leeway on the programmability side and work with voucher issuers.
The Korea Financial Telecommunications and Clearings Institute will be the smart contract management agency. It plans to develop standards for the voucher functions. What’s unclear is how much leeway banks will have on the programming side.
Given the Korean trials are for wholesale CBDC, it’s a little surprising that the the central bank is publicly promoting the term CBDC to end users. If the central bank decides to launch a retail CBDC in future, we wonder whether consumers will understand the difference.
Meanwhile, as part of the wholesale CBDC campaign launch, the Governor of the Bank of Korea, Chang Yong Rhee, had a thought provoking chat with Agustín Carstens, the head of the Bank for International Settlements. We explore that separately.
Ledger Insights is soon to release a report on tokenized deposits. If you’d like to receive an alert when it comes out click here.