BOK's digital currency project aligns with future monetary system, says BIS chief

Finance

Published: 23 Nov. 2023, 18:08 Updated: 23 Nov. 2023, 19:16

BOK's digital currency project aligns with future monetary system, says BIS chief

Bank for International Settlements General Manager Agustin Carstens, right, and Bank of Korea (BOK) Gov. Rhee Chang-yong in a forum held to discuss their collaborative effort on central bank digital currency at the BOK headquarters in central Seoul on Thursday. [NEWS1]

Korea needs to build a digital infrastructure, including regulatory frameworks, as it steps toward central bank digital currency (CBDC) projects, the chief of the Bank for International Settlements (BIS) said Thursday.

“The key here is to guarantee that all the digital asset networks are interconnected and interoperable,” said BIS General Manager Agustin Carstens at a forum hosted by the Bank of Korea (BOK) at its headquarters in central Seoul on Thursday.

“The technology is already there to achieve this. The real challenge is to work out the legal and regulatory frameworks, the governance and the communication protocols needed for such a network of networks to operate.”

He added the BOK's CBDC project "aligns well with the vision of the future monetary system."

Korea is one of many countries working on the development of CBDC, a new form of money issued digitally by a central bank.

The BOK, Financial Services Commission (FSC) and Financial Supervisory Service (FSS) announced their cooperation with the BIS to test the commercialization of CBDC last month.

“The future monetary system needs wholesale central bank money at its core, complemented by tokenized commercial bank money and potentially other tokenized assets. And these need to be combined on a common digital infrastructure,” Carstens added.

Retail CBDCs are directly accessible to general economic entities, including households and businesses, while wholesale CBDCs are exclusively available to financial institutions for the purposes of interbank fund transfers and final settlements.

The BOK plans to start testing the CBDC in the fourth quarter next year.

Up to 100,000 people will be allowed to participate in the test after regulatory hurdles are lifted by the third quarter, the central bank said on Thursday.

During the test, banks will issue deposit tokens, and participants will be able to use them to make payments for the goods they purchase. Deposit tokens will be similar to digital vouchers.

Banks participating in the project will be decided by the third quarter next year.

“Right now it’s difficult to tell what kind of benefits users will directly experience because [banking] is very well-digitized in Korea,” said Ahn Byung-nam, head of digital asset research at the FSS during a press conference held at the BOK headquarters on Thursday.

“But a lot of inefficiencies and waste of expenses will be resolved in the back office,” he added.

Kim Dong-sup, director at the BOK’s digital currency research division, said the issuance of various types of vouchers in numerous forms, both offline and online, makes management difficult.

“Through a public platform that can manage the distribution [of the diverse vouchers], efficiency will go up nationwide,” Kim said in the press conference.

BY JIN MIN-JI [jin.minji@joongang.co.kr]