The Bank of Korea announced on July 31 plans to conduct a central bank digital currency (CBDC) in three towns. A report featured on the Korean news site Chosun revealed that the proposed CBDC pilot test would be conducted outside the capital city of Seoul.
The pilot test titled “private target CBDC test bed” will be conducted in Jeju, Incheon, and Busan towns. According to the report, the bank will select one of the three towns where the pilot trials for CBDC in payment and distribution will be conducted.
CBDC Pilot Trials
The bank explained that the expected pilot test would involve buying franchises that would allow the user to pay through the CBDC.
A statement from the bank spokesperson confessed that the CBDC digital wallet will be accessed by locals and foreigners, including tourists, during the pilot testing phase. He stated that the bank had adopted an issuance and distribution method similar to the conventional currency schemes, which was launched in 2020. During the COVID-19 pandemic, South Korean legislators reportedly accepted using local currency schemes for basic income and relief payments.
Since then, the bank has been exploring ways to introduce the CBDC to promote the growth of the South Korean financial sector. Recently South Korean banks, including Hana and Woori, revealed plans to examine the benefits of tokenizing the depository sector.
South Korea to Research on CBDC
Also, the two banks plan to conduct extensive research on customized tokens (CDs). A CD is a tokenized bank depository that leverages blockchain technology to replace customary notes.
According to Woori and Hana banks, the development of CDs aimed at strengthening the Korean financial sector. The banks mentioned that the CDs are easily compatible with the CBDC.
Beyond this, the selected regions for the pilot testing have facilitated the issuance and distribution of local currencies, including Tamranjeon, Incheon e-Eum, and Dongbaekjeon.
Even though some of the selected regions rank among the most populated areas in South Korea, the bank confirms to proceed with other development for the CBDC after the pilot trial.
Earlier, the bank had outlined the projects it will undertake to support the launching of the CBDC. In July, the bank plans to invest in researching the CBDC use case on smart contracts. Also, the banks intend to integrate near-field communication (NFC) on the CBDC platform for offline payments and cross-border transactions.
CBDC Facing Techinical Issues
A report from a local commercial bank employee claimed that the Busan region has a growing population of eligible citizens. He lamented that having such a population might undermine the efforts of the Bank of Korea. The executive noted that Jeju ranks second in the populous region and was more favorable for the expected pilot CBDC trials.
Elsewhere in an embroiled debate to examine the suitability of CBDC over the South Korean won scheme, the community regretted that the digital fiat had more technical problems than the traditional currency.
In a recent report, the Bank of Korea admitted that the CBDC failed to overcome some technical challenges at the primary development phase. The bank confessed that the CBDC system that supported 2000 transactions per second (T/S) slowed down after reaching the maximum limit.
Unlike the traditional payment system, the bank confessed that CBDC has a high transaction speed. Despite the technical challenges, the bank will continue to explore innovative ways to increase the capacity and speed of the transaction.