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BOK to test feasibility of digital currency, remains cautious on issuance

Naver, Kakao reportedly to join bid for central bank’s pilot program that kicks off in August

May 24, 2021 - 15:10 By Jung Min-kyung
A passerby looks at prices of cryptocurrencies including bitcoin on a digital signboard operated by a local cryptocurrency exchange, Bithumb, in Gangnam District, southern Seoul. (Yonhap)
The Bank of Korea is looking for a partner to work with on its pilot digital currency development program, raising market expectations that the central bank is moving closer to issuing digitalized cash.

The pilot program is set to kick off in August, officials said on Monday, but stressed that it is just a part of feasibility test and that it has no plans yet for actual issuance.

The central bank welcomed interested businesses to participate in the bid for a 10-month partnership deal as technological supplier to develop its central bank digital currency (CBDC) on its website.

The pilot program has been allocated a total of 4.9 billion won ($4.4 million), according to the BOK.

The program, which will be carried out in a “virtual environment,” will consist of two stages.

The first stage, focusing on research and testing of CBDC’s basic role, is scheduled to be completed by December, followed by the second stage centered on more detailed concepts, such as privacy protection. The second stage is slated to wrap up in June 2022.

For the first stage, testing of CBDC issuance and circulation alongside payment and electronic financial transactions will be carried out via public cloud. Whether CBDC could be directly wired among users or exchanged to money deposited in banks would be tested out in simulations as well.

The second stage will involve trials of cross-border transactions, purchase of digital assets via CBDC and offline payments, which would test whether users could wire or pay with CBDC in an offline environment.

Monday’s announcement comes as central banks around the world, most prominently China, have been taking steps toward development and launch of their own sovereign digital currency. The US Federal Reserve last week said it plans to release a research paper this summer regarding its CBDC development.

China, a forerunner in the race, has already distributed millions of dollars’ worth of digital yuan in real-world trials in key cities such as Shenzhen and Chengdu.

For the BOK’s pilot program, Korean tech giants Naver and Kakao expressed interest in the partnership earlier this month. Their respective fintech or blockchain units -- Naver Financial, Line Plus and Kakao’s Ground X -- have reportedly launched task forces to prepare for the bidding. LG CNS, an IT service unit under South Korean conglomerate LG, is also reportedly eyeing the partnership, while Samsung SDS, a similar affiliate of Samsung Group, said they had yet to decide on the matter as of early May.

Overall, the BOK has tread cautiously toward CBDC development with a BOK official saying Monday that “the necessity to issue its digital currency is not urgent at the moment.”

“We are launching the pilot test to see how CBDC could be used as a form of safe asset when the share of cash transactions decline significantly,” the official explained in a closed-door briefing.

By Jung Min-kyung (