The Bank of Korea (BoK) is reportedly preparing to launch the second phase of the Central Bank Digital Currency (CBDC) exam, with a focus on testing the distribution of government subsidies through digital currencies.
CBDC projects ultimately aim to increase fiscal efficiency by curbing abuse and reducing administrative costs.
However, there remains widespread opposition to CBDCs from citizens, many of whom appear to believe that they are tools of government surveillance.
Is Korea’s CDBC ready?
According to reportAmid delays in discussions on the Korean won stablecoin bill, the Bank of Korea (BOK) is accelerating the resumption of CBDC experiments.
According to sources cited in local reports on December 21, the Bank of Korea has already sent official documents regarding the second round of CBDC tests to major banks. A Bank of Korea official said, “Details such as the specific method and schedule are currently being discussed.”
In the second phase of the test, the Bank of Korea is said to be considering distributing some of the government subsidies in the form of digital currency. They hope that a CBDC will help limit their use and reduce administrative and administrative costs associated with grant enforcement.
The first phase of the CBDC experiment was implemented in seven banks and lasted three months before being suspended. At the time, the experiment faced backlash for its limited practicality and for imposing a financial burden of billions of won on participating banks.
The idea of reviving the test phase came up in late August this year during a meeting between Bank of Korea Governor Lee Chang-yong and Finance Minister Koo Yun-chul, during which the use of CBDC for subsidy payments was discussed as a way to address the issue.
The banking industry insists that a second round of testing is needed for now. A banking industry official said, “Now that the official document has been released, we have no choice but to resume preparations.”
At the same time, it has become clear that South Korea may be looking to pursue both stablecoin and CBDC paths rather than sticking to one or the other.
A Bank of Korea official said, “Stablecoins and CBDC can coexist because they have different roles and purposes.We are proceeding with the pre-scheduled procedures, and this is not directly related to the delay in deliberating the Won-denominated stablecoin bill.”
Despite these claims of efficiency, widespread opposition from the South Korean public to the widespread implementation of CBDCs has been significant, with high-profile online petitions being filed with claims such as how CBDCs encourage excessive government oversight and personal financial control.
South Korean government agencies discuss monitoring of stablecoins
The launch of the second phase of CBDC testing is being discussed as the institutionalization of Korean won-denominated stablecoins continues to be delayed due to the Financial Services Commission and the Bank of Korea being unable to see eye to eye on issuer and regulatory framework issues.
The Democratic Party of Korea’s Digital Asset Task Force (TF) initially requested the Financial Services Commission to submit the government’s bill by December 11, but the Financial Services Commission reportedly submitted only the outline of the bill.
The draft ‘Key Contents of the Digital Asset Framework Act’ claims that the Financial Services Commission (FSC) has proposed a plan to designate key stablecoins based on their number of users and volume of issuance. This designation should have been made in consultation with the Bank of Korea (BOK).
Therefore, it can be interpreted that this is only a partial reflection of the Bank of Korea’s concerns about the issuance of won-denominated stable coins. A final draft is expected to be completed, but it has been delayed by a lack of consensus on key issues, including requirements for issuance by a bank-led consortium and unanimous agreement among policy consensus bodies.