Korea to begin simulation experiments to test the Digital Won later this year
South Korea’s central bank, the Bank of Korea, has announced via a notification on its official website that the country’s Central Bank Digital Currency (CBDC) project will be tested through simulation experiments in the second half of 2021. The announcement marks the latest example of Korea’s renewed focus on CBDCs as China inches closer towards a public launch of the Digital Yuan.
Central Bank Digital Currencies are digital representations of a country’s fiat money issued by the central bank in order to enable large-scale cashless transactions, improve the speed of transactions, and reduce associated costs.
CBDCs will not only allow countries to curb illegal activities by tracking transactions, but it will also allow governments to design their monetary policy based on the real-time spending of the population instead of depending on historic data.
While China’s Digital Yuan is anticipated to be the first digital version of a currency issued by a major central bank, Sweden, Korea, Russia, and even the European Central Bank are working towards the launch of their own digital currency.
South Korea’s oldest bank, the Shinban Bank, recently announced the completion of the development of a CBDC demonstration platform for the country’s digital currency.
The platform will enable the Bank of Korea to virtually issue a mock digital currency in the form of a blockchain token for distribution to its intermediary banks. In turn, these banks will be able to circulate it among individuals who can use the Digital Won for payments and other transactions.
Such platforms are expected to come in handy to the central bank as it progresses further in the testing phase for the Digital Won. However, Bank of Korea Governor Lee Ju-yeol had said in February that it was more important to be right than to be first in the global race for CBDCs, hinting that there was still a long way to go before Korea would be ready to launch the Digital Won.
Marking the increased interest of countries towards launching their own CBDC, professional services firm PwC recently released the first edition of the CBDC Global Index last week. Korea made it to the top ten retail CBDC projects with Bahamas being the global leader in CBDC development, according to the report.