The Central Bank of South Korea is upping its research into digital currency. The bank has formed a legal advisory group to advice on the issuance of a Central Bank Digital Currency (CBDC).
The Korean Times reported on June 15, 2020, that the Bank of Korea (BOK) has created a panel of six experts to provide guidance. The team comprises legal experts in IT, Finance, and Fintech sectors. It will advise on potential legislative and amendment obstacles besides advising the bank as it develops and trials a CBDC. As per the newspaper, a bank official stated:
“We established the advisory group to discuss legal issues surrounding a CBDC and figure out which laws need to be revised or enacted for smooth progress in the BOK’s possible issuance of digital currency.”
Abandoned Its Wait-And-See Approach
This development appears to be the next phase in the bank’s rapid reevaluation of CBDCs. While creating a task force last December to look into digital currencies, BOK said it only wanted to “keep an eye” on what other countries were doing rather than to create something themselves. The Bank had said it wasn’t in a hurry to issue a CBDC.
Nevertheless, things seem to have taken a different turn in April. This is after countries like the US and Japan started moving faster in the direction than anticipated. The BOK abandoned its wait-and-see approach and launched a pilot program for testing a digital Won. The program is expected to run until December 2021 as it identifies technical and legal provisions related to CBDC. The objective is to develop and test a new CBDC that could be used to replace physical cash. This remains a real possibility as a result of the expected recession as a result of Covid-19 lockdowns.
Beyond the Private Sector to Central Banks
Even though South Korea’s Central Bank’s plans have been stealth, there have been hints pointing in this direction. The CBDC will piggyback off the settlement system as used by all central banks to facilitate high-value transfers between financial institutions.
BOK Governor Lee Ju-Yeol said last Friday; it was noteworthy that central banks were keen on developing digital payment systems. He added that digital systems, in addition to real-time gross settlement systems (RTGS) were likely “to reduce settlement risk.” Speaking during the occasion to mark BOK’s 70th anniversary he stated:
“Digital transformation could move beyond the private sector to the central bank’s payment and settlement system […] as an institution responsible for ensuring the safety and efficiency of the payment and settlement system, the central bank needs to proactively respond to these changes […] the currently ongoing research and development on central bank digital currency must be carried out as planned.”