The Bank of Korea (BOK) has unveiled details of its central bank retail digital currency (CBDC) pilot program, stating that 100,000 selected Korean citizens will participate in the trial in the fourth quarter of next year.
Participants will be able to purchase goods with tokens in the form of CBDC issued by commercial banks. The central bank said a digital currency could solve problems with existing voucher schemes, which are special government grants. Challenges include “high transaction fees, complicated and slow processes, limited post-trade verifications and concerns about fraudulent claims.”
The announcement came a day after Augustin Carstens, director general of the Bank for International Settlements, visited Seoul.
Last month, South Korea’s central bank described CBDC wholesale pilot scheme support token deposits in commercial banks and explore new forms of financial products. This distinction between wholesale CBDC and retail CBDC is important. Financial institutions and interbank settlements primarily use a wholesale CBDCwhile individuals and businesses use retail CBDCs for everyday transactions.
The central bank is currently discussing the selection of one city out of three potential candidate cities in South Korea — Jeju, Busan and Incheon — as a test bed for the CBDC pilot. according to a local media report in August. Seoul, the capital of South Korea, is not on the list.
South Korea’s central bank, which has been working on CBDC pilots since 2020, completed two pilot testing phases in 2021 and 2022 for its retail CBDC. It also conducted simulations from July to November 2022, together with the Korea Financial Telecommunications & Clearings Institute (KFTC) and 14 commercial banks. The Korean central bank worked with several technology partners for the simulation projects, including Samsung Electronics, Ground X (web3 subsidiary of Korean technology company Kakao), ConsenSys, KPMG, Kakao Bank, Kakao Pay and others.
After the simulation, Samsung signed a memorandum of understanding with the Bank of Korea this May to conduct research on digital currencies — these digital currencies could work with Samsung’s Galaxy phones and watches. Samsung’s CBDC offline technology, which uses near field communication (NFC), enables contactless payments between devices when both the sender and receiver are disconnected from the internet.
South Korea is involved a growing number of countries around the world which have accelerated the exploration of digital currency systems. Japan announced it plan for a CBDC pilot in April and started discussions with 60 companies to develop a digital yen; India launched its pilot for a retail digital currency in December last year. Hong Kong launched the first round of the e-HKD pilot program with 16 companies in May. More recently, foreign banks including HSBC, Hang Seng Bank, Taiwan’s Fubon Bank and Standard Chartered have participated in China’s e-CNY pilot, according to media reports. Singapore also said will “pilot the wholesale CBDC live version to support payments across all commercial banks” next year.
