The Bank of Korea (BOK) has unveiled details about its pilot program for its retail central bank digital currency (CBDC), announcing that 100,000 selected Korean citizens will take part in the trial in the fourth quarter of next year.
Participants will be able to use tokens in the form of CBDC issued by commercial banks to make purchases. The central bank has stated that a digital currency could address issues with existing voucher systems, such as high transaction fees, complex and slow processes, limited post-transaction verifications, and concerns about fraudulent claims.
This announcement follows a visit to Seoul by Augustin Carstens, the general manager of the Bank of International Settlements.
South Korea’s central bank recently outlined its wholesale CBDC pilot plan to support tokenized deposits in commercial banks and explore new forms of financial products. This differentiation between wholesale CBDC and retail CBDC is crucial, as financial institutions and interbank settlements primarily utilize a wholesale CBDC, while individuals and businesses use a retail CBDC for daily transactions.
The central bank is currently considering selecting a city from three potential candidates in South Korea — Jeju, Busan, and Incheon — for piloting the CBDC, according to a local media report released in August. Notably, Seoul, the capital of South Korea, is not included in the list.
South Korea’s central bank has been conducting CBDC pilots since 2020, completing two phases of pilot tests in 2021 and 2022 for its retail CBDC. It also ran simulations from July to November 2022, in collaboration with the Korea Financial Telecommunications & Clearings Institute (KFTC) and 14 commercial banks. The Korean central bank partnered with various technology companies for the simulation projects, including Samsung Electronics, Ground X (a web3 subsidiary of Korea’s tech firm Kakao), ConsenSys, KPMG, Kakao Bank, Kakao Pay, and others.
Following the simulation, Samsung entered into a memorandum of understanding with the Bank of Korea in May to conduct research on digital currencies that could be compatible with Samsung’s Galaxy phones and watches. Samsung’s offline CBDC technology utilizes near-field communication (NFC) for contactless payments between devices when both the sender and recipient are disconnected from the internet.
South Korea joins a growing number of countries worldwide that are intensifying their exploration of digital currency systems. Japan announced its plan for a CBDC pilot program in April and has commenced discussions with 60 firms to develop a digital yen. India launched its pilot for a retail digital currency in December of last year, while Hong Kong initiated the first round of its pilot program for the e-HKD with 16 companies in May. Additionally, foreign banks, including HSBC, Hang Seng Bank, Taiwan’s Fubon Bank, and Standard Chartered, have joined China’s pilot trial for the e-CNY. Singapore has also stated that it will “pilot the live issuance of wholesale CBDCs to support payments across commercial banks” next year.