Bank of Korea to Trial CBDC in Three Cities
The Bank of Korea has recently made a significant move by narrowing down three regions to serve as a pilot testbed for its Central Bank Digital Currency (CBDC). According to a report from a local South Korean media outlet, Chosun, the selected regions are Jeju, Busan, and Incheon, however, notably, the country’s capital, Seoul, is not included in the current shortlist.
The purpose of the pilot test is to conduct a ‘private target CBDC test bed,’ where the Bank of Korea aims to evaluate and refine the payment and distribution process of the CBDC at a local level. This regional approach to testing is expected to mirror the issuance and distribution structure of existing local currencies, which are often issued by local governments to stimulate their respective regional economies. Like local currencies, the CBDC may have geographic limitations, restricting its use to specific areas.
The selected regions, Jeju, Busan, and Incheon, are already issuing their local currencies known as ‘Tamranjeon,’ ‘Dongbaekjeon,’ and ‘Incheon e-Eum,’ respectively. While these local currencies can be used by both residents and non-residents within their designated areas, the CBDC’s technological complexities require additional considerations.
A significant challenge for the Bank of Korea is to address the technical barriers associated with the CBDC system. To gain valuable insights, the Bank conducted tests of the CBDC mock system in areas outside the metropolitan region for six months. However, the results revealed that the processing speed of the CBDC system was inferior to that of major domestic micropayment operators.
To overcome these hurdles, the Bank of Korea recognizes the need for a substantial number of IT personnel. As the institution plans a large-scale retail payment system project in the near future, it is already in the process of mobilizing a considerable workforce, including professionals from prominent companies in the IT industry.
The Bank of Korea aims to commence the private test next year, and with limited preparation time, it must carefully consider the pilot site’s performance, expected number of users, and potential impact on the local economy before making a final decision.
An official from a commercial bank disclosed that Busan, being a city with a large eligible population, has posed several challenges for the Bank of Korea. Consequently, Jeju, with the next largest population, appears to be a more favorable option for the pilot test.
Industry experts speculate that following the closed-area payment experiment, the Bank of Korea may gradually expand the scope of applicable regions for the CBDC. They cite China’s approach to its CBDC rollout, which started with five cities during the 2020 Beijing Olympics and has since expanded to 26 cities.
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