South Korea to pilot CBDC in a city other than Seoul.

South Korea to pilot CBDC in a city other than Seoul.

The Bank of Korea Selects Regions for CBDC Pilot Testing

In an effort to explore the potential of central bank digital currencies (CBDCs), the Bank of Korea has announced its selection of three regions for piloting the technology. These regions include Jeju, Busan, and Incheon, but do not include the nation’s capital, Seoul. The aim of this pilot testing is to establish a “private target CBDC test bed” in one of these regions, while also experimenting with payments and distribution at a public level, and securing partnerships with businesses that can accept CBDC payments.

Regional Closed Tests: A Familiar Approach

The Bank of Korea has decided to conduct regional closed tests of the CBDC, a concept that draws inspiration from the current local currency scheme in place in various regions of South Korea. Introduced as a response to the COVID-19 pandemic, the local currency scheme serves as a basic income and relief payment solution in regions like Jeju, Busan, and Incheon. These regions have their own local currencies, namely ‘Tamranjeon’, ‘Dongbaekjeon’, and ‘Incheon e-Eum’, respectively. By leveraging this existing framework, the Bank of Korea aims to make the CBDC tests more relatable and accessible to the general public.

CBDC Wallet and Inclusive Participation

One of the key features of the CBDC pilot is the introduction of a dedicated electronic wallet app. This app will not only allow local residents to participate in CBDC transactions, but also cater to tourists and other visitors. The Bank of Korea intends to create an inclusive environment where the benefits of using a CBDC are extended to a wide range of individuals.

Technical Challenges of CBDCs

The implementation of CBDCs presents unique technical challenges compared to the local currency scheme. While the local currencies are already in circulation and have established systems for issuance and distribution, CBDCs require new infrastructure to enable secure digital transactions. The Bank of Korea acknowledges these challenges and aims to address potential technical barriers through the regional closed tests.

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Stakeholder Perspectives

According to an official from a commercial bank in Korea, the choice of Jeju as a candidate for the CBDC pilot is greatly inclined due to the large number of eligible citizens residing in Busan. The Bank of Korea believes that Jeju, with its second-largest population, offers a more manageable testing environment.

Furthermore, several banks in South Korea are actively researching stablecoins as alternative solutions to CBDCs. Stablecoins aim to provide the efficiency benefits of CBDCs while utilizing existing blockchain technologies and infrastructure. This highlights the ongoing exploration of various approaches within the industry.

Conclusion

The selection of Jeju, Busan, and Incheon as pilot regions for the Bank of Korea’s CBDC testing is an important step forward in exploring the potential of digital currencies. By leveraging the existing local currency scheme and addressing technical challenges, the Bank aims to lay the groundwork for the future implementation of a CBDC in South Korea. The introduction of a dedicated CBDC wallet app and the inclusion of both residents and visitors in the pilot tests demonstrate the Bank’s commitment to creating a user-friendly and accessible digital currency ecosystem. As the industry continues to evolve, South Korea’s proactive stance and ongoing research indicate a promising future for blockchain and CBDC technologies in the country.

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