By Lee Min-hyung
The Bank of Korea (BOK) will virtually issue and circulate a central bank digital currency (CBDC) in 2021 to test whether it can be successfully put to use. The test operation comes at the end of two years of research conducted by the BOK on the issuance of CBDC.
The central bank said the experiment is aimed at verifying if the digital currency can replace cash or existing forms of transaction measures. The BOK's digital currency research team plans to open a server and carry out the experiment.
"We will create a virtual environment by using blockchain technology and test whether our CBDC can be used for real-world transactions," an official from the BOK said. "The CBDC will be issued and circulated in the virtual world and we are going to test a number of transaction scenarios under a variety of circumstances."
"For now, the BOK does not have any plans to partner with any private companies over the test, and this will be carried out on our own."
The central bank is in the analysis phase of the project, which is the second phase in a three-step process. The virtual issuance and circulation of CBDC is part of the final phase that is planned to start sometime early next year.
Earlier this year in July, the BOK finished the first-phase review of the project and is building CBDC system architecture in cooperation with an external consulting partner.
Initially, the central bank was not in a rush to enhance research on the CBDC project. But with major economies in such countries as the United States, China and EU member nations speeding up their CBDC drives, the BOK has also joined the global bandwagon and is busy pushing the project forward.
The outbreak of the coronavirus earlier this year has also rekindled the interest on the CBDC here and abroad, as the spread of COVID-19 resulted in the rise of the non-face-to-face transactions.
China in particular is one of the fast movers in the CBDC drive. The country started related research in 2014, and is already operating pilot tests of its CBDC, the digital yuan, in major cities such as Beijing and Shanghai.
The Chinese authorities remain proactive in supporting the early introduction of CBDC there by supporting research not just on the CBDC issuance, but also establishment of infrastructure to allow users to make CBDC payments via popular local payment platforms such as Alipay and WeChat Pay.
The People's Bank of China also revealed its plan to put the digital yuan to use as an official transaction measure as early as 2022 during the 2022 Winter Olympics in Beijing. Even if the feasibility of the plan remains to be seen, China is still ahead of Korea in terms of embracing CBDC.
The BOK has yet to enter such an advanced level of talks with commercial payment platform operators or fintech companies over its digital currency. Details over partnerships with the commercial sector are expected to be announced after the BOK finishes the pilot test of the virtual CBDC issuance next year.