In a move to modernize its financial infrastructure, South Korea is set to embark on a pioneering project involving digital currency.
Commencing in the fourth quarter of 2024, the nation will start a pilot program involving the participation of 100,000 citizens, signifying a significant stride towards the nationwide implementation of digital currencies.
South Korea to Pilot Digital Currency with 100,000 Citizens
In an upcoming pilot program jointly managed by the Bank of Korea (BOK) and financial regulators, 100,000 South Korean citizens will be able to use deposit tokens based on the country’s central bank digital currency (CBDC).
The BOK, alongside the Financial Services Commission and the Financial Supervisory Service, unveiled these plans after Agustin Carstens, the General Manager of the Bank for International Settlements, visited the insitution. Initially revealed in October, the project is an advanced version of the BOK’s intentions to conduct real-world experiments with CBDCs.
Under this pilot, selected participants can purchase goods using deposit tokens issued by commercial banks, operating similarly to vouchers in retail stores. Recruitment for participants is expected to begin around September to October of the following year, with the project spanning three months.
The pilot program will also have some limitations. Participants can only use the digital currency for intended payment purposes, while personal remittance and other uses are currently prohibited.
The BOK and financial authorities also plan to conduct technological experiments to evaluate new financial products. One experiment involves collaboration between the BOK and Korea Exchange, focusing on integrating CBDC into a simulated system for carbon emissions trading. This aims to test the feasibility of transactions between carbon emissions rights and payment tokens.
South Korea’s ‘Digital Won’ Revolution
The BOK highlighted that this digital currency has the potential to overcome challenges faced by existing government voucher systems. These challenges include high transaction fees, slow settlement processes, limitations in post-transaction verification, and concerns about fraudulent claims.
The “digital won” project, coined by Agustin Carstens, has also received a favorable evaluation for its forward-thinking approach to future monetary systems. Under Governor Rhee Chang-yong’s leadership, the BOK remains open to conducting separate pilots if banks propose new individual projects.
While China leads the way in the CBDC adoption space with its digital yuan, South Korea’s successful simulated tests in December 2021 position it as a significant player in the global shift towards digital currencies.
Major cities like Jeju, Busan, and Incheon are likely pilot locations, paving the way for transformative impacts on everyday transactions and future financial innovations.
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