November 24, 2023
SEOUL – From the fourth quarter of next year, individuals can test out the central bank digital currency with public vouchers, under a real-world test plan introduced by local authorities on Thursday.
The Bank of Korea, Financial Services Commission and Financial Supervisory Service jointly announced the details on the pilot project, following a previous notice in October.
Thursday’s announcement was made on the sidelines of a visit by Agustin Carstens, general manager of the Bank for International Settlements, which the BOK cooperated with for the introduction of the digital currency system.
Central bank digital currencies are a new form of digital money issued by a central bank, divided into two types: the wholesale CBDC for institutions and the retail CBDC for individuals.
For the real-world testing of CBDC, up to 100,000 individuals will be able to test it out using public vouchers in the fourth quarter of next year.
While state and local governments currently issue public vouchers for subsidies, under the new system banks will issue tokenized deposits, which can serve as digital vouchers. Individual users can use the tokens to purchase goods and services.
Authorities gave examples of using the CBDC vouchers to pay for child care or education as possibilities, though it did not confirm which public vouchers will be included in the pilot test.
“Improving the voucher function of the CBDC will increase the efficiency on the backend side,” said Kim Dong-Sup, head of the digital currency strategy team at the BOK.
“For instance, vouchers are issued in the form of paper, on mobile apps and some on websites, resulting in that being inconvenient for integrated management. If the CBDC platform improves the overall voucher system, this will bring down administrative costs, increasing efficiency,” Kim said.
The trial will be carried out for approximately three months. The list of banks participating in the trial run to use the retail CBDC will be confirmed by the third quarter of next year, the authorities explained.
In the meantime, the authorities will work to introduce a regulatory sandbox to facilitate demonstration of the digital currency.
“The introduction of vouchers in forms of CBDC may not be a groundbreaking change for end users as Korea is already a heavily digitalized country,” said Ahn Byung-nam, head of digital asset research team at the FSS.
“This is more about working on the development of technology to keep pace with the private sector and with developed nations,” Ahn said.
For the proof of concept testing of CBDC, the test trial will demonstrate potential transactions in a virtual environment.
The Bank of Korea and Korea Exchange are planning to simulate using the CBDC for carbon credit trading on a distributed ledger, most often represented by blockchain technology. Other tests include the issuance of tokenized assets and settlements through security tokens.
“The introduction of CBDC is about establishing a new infrastructure for finance. Banks can practice innovative services on the token-based network,” Kim explained. “Through the platform, we will be able to introduce an innovative future currency without changing the existing structure of finance.”
Banks that wish to participate in the pilot project can register until mid-December this year, the authorities said.
Carstens, who attended a seminar held at the central bank prior to the press briefing, said the BOK’s “digital won” initiative aligns well with the vision of the future monetary system.