- Bank of Korea launches CBDC pilot program with seven banks to test digital payments.
- Participants will exchange bank deposits for tokens to use at retail locations.
- The successful pilot could pave the way for South Korea’s institutional digital currency.
South Korea’s central bank, The Bank of Korea (BoK), has opened the pilot of its CBDC called the “Digital Test Project Hangang”. The implementation of the program will commence next month and will last for about three months. The pilot will consist of a CBDC payment system to determine the effectiveness of the same. Seven large banks are participating in the project on the side of the BoK.
Digital Tokens for Payments
The recipient of Bank deposits in the Hangang program will be able to redeem them for tokens. These tokens can be used to make payments for goods and services in supermarkets, online shops, and convenience stores. The pilot is expected to target around 100,000 South Korean citizens and to provide citizens with an opportunity to use CBDC in real-life scenarios.
The program will be designed in such a way that users can be able to convert their bank deposits into tokens or any other form of virtual currency and perform other purchases. This will enable the Bank of Korea to understand how CBDCs work as well as their practicality when used in daily transactions. In this regard, the central bank aims to investigate the role of CBDCs in replacing traditional payment systems and adopting them as a part of the financial system.
Bank Partnerships for Pilot
This pilot has been done by the Bank of Korea with seven leading banks. Some of the biggest South Korean banks are KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, IBK Industrial Bank of Korea, and BNK Busan. The program will help to validate how CDBC will work and improve consumers’ and merchants’ ability to use it.
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According to BoK officials, the pilot will help in collecting sufficient information about the applicability of CBDCs. If the Hangang program works as planned, the Bank of Korea could follow up with a full cryptocurrency known as an institutional digital currency in the future. This would help the government take the measures for the use of digital currency to the next level across the country.
This initiative also comes amid growing concerns over cryptocurrency-related risks. To address these challenges, the Bank of Korea has strengthened anti-money laundering regulations. The central bank has also ruled out adopting Bitcoin as a reserve asset, citing its volatility and the risk it poses.
