The Bank of Korea (BOK) rolled out details on its pilot program for its retail central bank digital currency (CBDC), stating that 100,000 selected Korean citizens will join the trial in the fourth quarter of next year.
The participants will be able to buy goods with tokens in the form of CBDC issued by commercial banks. The central bank said that a digital currency could solve issues with existing voucher systems, which are special government grants. The challenges include “high transaction fees, complicated and slow processes, limited post-transaction verifications and concerns over fraudulent claims.”
The announcement came a day after AgustÍn Carstens, the general manager of the Bank of International Settlements, visited Seoul.
Last month, South Korea’s central bank outlined its wholesale CBDC pilot plan to support tokenized 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 CBDC, whereas individuals and businesses use a retail CBDC for daily transactions.
The central bank is currently discussing selecting a city from the three potential city candidates in South Korea — Jeju, Busan and Incheon — as a test bed for piloting the CBDC, per a local media report released in August. Seoul, the capital of South Korea, is not included on the list.
South Korea’s central bank, which has been working on CBDC pilots since 2020, completed two phases of pilot tests in 2021 and 2022 for its retail CBDC. It also ran simulations from July to November 2022, along with Korea Financial Telecommunications & Clearings Institute (KFTC) and 14 commercial banks. The Korean central bank partnered with a host of technology partners for the simulation projects, including Samsung Electronics, Ground X (a web3 subsidiary of Korea’s tech firm Kakao), ConsenSys, KPMG, Kakao Bank, Kakao Pay and more.
After the simulation, Samsung signed a memorandum of understanding with the Bank of Korea this May to conduct some research on digital currencies — these digital currencies could work with Samsung’s Galaxy phones and watches. Samsung’s offline CBDC technology, which uses near-field communication (NFC), allows contactless payments between devices when both sender and recipient are disconnected from the internet.
South Korea joins a growing number of countries across the globe that have been ramping up the exploration of digital currency systems. Japan announced its plan for a CBDC pilot program in April and started discussions with 60 firms to develop a digital yen; India launched its pilot for a retail digital currency in December of last year. Hong Kong launched the first round of its pilot program for the e-HKD with 16 companies in May. Most recently, foreign banks, including HSBC, Hang Seng Bank, Taiwan’s Fubon Bank and Standard Chartered, have joined China’s pilot trial for the e-CNY, according to media reports. Singapore also said it will “pilot the live issuance of wholesale CBDCs to support payments across commercial banks” next year.