South Korea Moving to Stage Two of CBDC Pilot
In April 2021, BOK announced its intention to conduct a mock trial of the CBDC. Later in July, the Central Bank chose Ground X, the blockchain subsidiary of the South Korean Internet giant Kakao, to participate in the CBDC testing program. According to The Korea Herald on Monday (January 24, 2022), the first phase of the test addressed both “distribution issuance and distribution in a cloud-based virtual environment.” The report also noted that the pilot test ended in December 2021.
While the first phase was successful according to the Central Bank, the second phase has already commenced. According to the BOK, this second stage, which has been going smoothly, will address digital asset trading, offline payments, and cross-border settlements using the technology acquired in the first phase. The second stage is expected to conclude in June 2022, after which the South Korean central bank will start planning the launch of the digital Won.
BOK noted that CBDCs may have side effects on the global financial market, and therefore, they are proceeding prudently: “We are testing a slew of measures that could minimize the negative impacts of the digital currency on financial stability.” The Central Bank went on to say that it would take a long time for most major economies to launch their sovereign digital currency projects.
National Digital Currencies Gaining Popularity
CBDCs started gaining momentum amid the growing interest in cryptocurrency. According to data from the Atlantic Council, approximately 87 countries are exploring CBDCs, compared to 35 countries in 2020. While China, South Korea, and 12 other countries are conducting CBDC pilots and preparing for possible launches, central banks in nine countries have already launched their national digital currency projects. This includes the Central Bank of Nigeria, which officially unveiled the eNaira in October 2021 to become the first African nation to launch a CBDC.
Meanwhile, the United States appears in no hurry to issue a digital dollar. Back in October 2020, the Federal Reserve Chairman, Jerome Powell, said:
“We do think it’s more important to get it right than to be first and getting it right means that we not only look at the potential benefits of a CBDC, but also the potential risks, and also recognize the important trade-offs that have to be thought through carefully.”
Apart from national digital currency efforts, there have been calls for developing joint CBDC projects, which would boost the cross-border utility of these sovereign virtual digital currencies. Countries in Asia, as well as their counterparts in the Caribbean, are looking to be the first to form these CBDC coalitions.
For central bankers and the majority of the global financial elite, CBDCs present a viable alternative to privately-issued stable coins and cryptocurrencies. Organizations like the Bank for International Settlements (BIS) have routinely published reports calling for greater emphasis on national digital currencies in order to curtail the popularity of cryptocurrencies.