South Korea has initiated its pilot project for its Central Bank Digital Currency (CBDC).

In a joint announcement released today, the Bank of Korea (BOK), the Financial Services Commission (FSC), and the Financial Supervisory Service (FSS) unveiled the project.

The primary objective of this project is to evaluate the feasibility of a prospective monetary system underpinned by "wholesale CBDCs."

South Korea CBDC Pilot Program

This pilot program will involve both private banks and public institutions, with technical expertise provided by the Bank for International Settlements (BIS).

The BOK intends to conduct tests for both retail and wholesale CBDCs.

Within the framework of the wholesale CBDC experiment, banks will tokenise their deposits and circulate them within a network monitored by the BOK, the FSC, and the FSS.

Live trials of the retail CBDC are expected to commence following system setup in the fourth quarter of 2024.

The BOK clarifies that the pilot program does not guarantee inevitable implementation.

Retained Interest in CBDCs

In its 2022 Payment and Settlement Systems Report published in July this year, the BOK extensively explored the status of its Central Bank Digital Currency (CBDC), the digital won.

Furthermore, the BOK carried out two simulation projects between 2021 and 2022 to assess the feasibility of selected design models and establish the technical foundation for a potential CBDC system.

While the BOK expressed general satisfaction with the outcomes related to offline payments and smart contract-based transactions, the simulations did highlight performance challenges associated with blockchain technology.

The system was capable of processing up to 2,000 transactions per second (TPS); however, beyond this threshold, processing speed declined significantly.

To address these concerns, the BOK took substantial steps, including expanding its CBDC research unit from one team to four dedicated teams as of February 2023.