On Monday, the central bank of South Korea launches the pilot program for a central bank digital currency (CBDC) that will run for 22 months. During this period, it will review both the technological and legal sides.
The announcement comes amid global turmoil caused by COVD-19 showing that the central bank is responding to clearly changing scenario in world. As the cash’s demand is continuously going low, the government financial institutions are looking for more contactless payment options- including CBDC.
Pilot Program will Run for 22 Months
The Bank of Korea, however, has not a plan to launch the digital version of won, country’s native fiat in the near future. Therefore, they announce a pilot program comprising of 22 months from its design to testing. In such a changing global environment, they can think about launching a digital currency.
The central bank, in this time frame, will pinpoint and analyze the challenges- both legal and technical. From a legal point of view, they will ensure what changes should be done to make it legalize in law documents. Technological prospect comprises seeing CBDC with a technical lens and checking the reliability of underlying technology, the blockchain.
The period of 22 months until December 2021 includes four phases: CBDC’s design requirements from March 2020 to July 2020 (5 months); a technical study from April 2020 to August 2020 (5 months); business process and analytics from September 2020 to December 2020 (4 months); and CBDC’s construction and review from January 2021 to December 2021 (12 months).
The Plan is still Unconfirmed
The Bank of Korea stresses that ‘’ it is not necessary to issue CBDC in the near future’’ because its demand is currently low against cash which is still working. There is another motive behind the launch of the pilot program as the Bank of Korea conveyed:
‘’The need to issue a CBDC in the near future still remains slim when considering the demand for cash that still exists, the competitive payment service market and high-level financial inclusion, but there is a need to be able to quickly take steps in case market conditions at home and abroad change rapidly.’’
Recently, the central bank of Sweden announced the launch of the pilot program for the country’s digital version of fiat.
The Bank of International Settlements (BIS) also accepted the fact that payment means are shifting from physical to digital amid Coronavirus outbreak. BIS said, ’’Resilient and accessible central bank operated payment infrastructures could quickly become more prominent, including retail central bank digital currencies (CBDCs).’’