The Bank of Korea (BOK) has announced the three regions that will participate in its central bank digital Currency (CBDC) pilot project next year. The selected regions are Jeju, Busan, and Incheon, according to a report from a local South Korean media outlet on July 31, 2023.
What is the CBDC pilot project?
The CBDC pilot project is part of the BOK’s efforts to explore the feasibility and implications of issuing a digital won, the national currency of South Korea. The pilot project will involve testing the issuance and distribution of the CBDC at a public level, as well as securing franchises that can accept payments via CBDC.
The pilot project will be similar to the current local currency scheme that is in place in various regions of South Korea. The local currency scheme was introduced during the COVID-19 pandemic as a basic income and relief payment solution. The local currencies, such as “Tamranjeon” in Jeju, “Dongbaekjeon” in Busan, and “Incheon e-Eum” in Incheon, are issued and distributed by the local governments and can be used for purchases at designated merchants.
The BOK plans to select one of the three regions for the CBDC pilot project after conducting a preliminary survey and analysis. The pilot project is expected to start in August 2023 and last for six months.
Why did the BOK exclude Seoul from the CBDC pilot project?
The BOK decided to exclude Seoul, the capital and largest city of South Korea, from the CBDC pilot project for several reasons. One reason is that Seoul already has its own local currency scheme, called “Zero Pay”, which is based on QR codes and mobile payments. Another reason is that Seoul has a large population and a complex economic structure, which would pose challenges for testing and evaluating the CBDC.
According to officials from banks in Korea, the BOK is leaning towards Jeju as the final candidate for the CBDC pilot project. Jeju has a relatively smaller population than Busan and Incheon but still has enough economic activity and tourism to test the CBDC. Jeju also has a favorable regulatory environment for blockchain and crypto innovation, as it is designated as a special self-governing province.
What are the implications of the CBDC pilot project?
The CBDC pilot project is not a commitment to issue a CBDC, but rather a preliminary experiment to assess the technical and social aspects of a digital currency. The BOK has stated that it does not have any plans to issue a CBDC in the near future, but it wants to be prepared for any changes in the global financial landscape.
The CBDC pilot project will help the BOK understand the potential benefits and challenges of a digital currency, such as its impact on monetary policy, financial stability, payment efficiency, privacy protection, and financial inclusion. The pilot project will also provide valuable feedback from the public and stakeholders on their preferences and expectations for a digital currency.
The CBDC pilot project will also position South Korea as one of the leading countries in exploring and developing digital currency solutions. South Korea joins other countries such as China, Japan, Sweden, and France that are actively conducting research or testing on CBDCs. The CBDC pilot project will enhance South Korea’s competitiveness and innovation in the digital economy.