The Bank of Korea (BOK) has released details of its pilot program for a retail central bank digital currency (CBDC), saying 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 that a digital currency would solve the issues of the existing voucher systems, which are special government grants. Challenges include “high transaction fees, complicated and slow processes, limited post-transaction verifications and concerns about fraudulent claims.”
The announcement came a day after Augustin Carstens, the general manager of the Bank of International Settlements, VISITS Seoul.
Last month, the central bank of South Korea outlined the CBDC wholesale 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. Main financial institutions and interbank settlements use wholesale CBDCwhile individuals and businesses use a retail CBDC for daily transactions.
The central bank is currently discussing the selection of one city from three potential city candidates in South Korea – Jeju, Busan and Incheon – as a test bed for the CBDC pilot, in a local media report released in August. Seoul, the capital of South Korea, was not included in the list.
South Korea’s central bank, which has been working on CBDC pilots since 2020, has completed two rounds of pilot tests in 2021 and 2022 for its retail CBDC. It is also running simulations from July to November 2022, together with the Korea Financial Telecommunications & Clearings Institute (KFTC) and 14 commercial banks. The Korean central bank has collaborated with several technology partners for simulation projects, including Samsung Electronics, Ground X (a web3 subsidiary of Korean 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 research on digital currencies — these digital currencies could be used in Samsung Galaxy phones and watches. Samsung’s offline CBDC technology, which uses near-field communication (NFC), allows contactless payments between devices when the sender and receiver are not connected to the internet.
South Korea joined more and more countries around the world which is ramping up the exploration of digital currency systems. Japan announced it plans for a CBDC pilot program in April and started discussions with 60 companies to develop a digital yen; India launched its pilot for a retail digital currency last December. Hong Kong launched the first phase of its pilot program for e-HKD with 16 companies in May. Most recently, foreign banks, including HSBC, Hang Seng Bank, Taiwan’s Fubon Bank and Standard Chartered, participated in China’s pilot trial for e-CNY, according to media reports. Singapore also said it will “pilot the live issuance of wholesale CBDCs to support payments by commercial banks” next year.