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South Korea’s Central Bank Launches Central Bank Digital Currency Pilot Program in Case of Future Necessity

South Korea’s central bank recently announced that it has launched a pilot program assessing the issuance of a central bank digital currency (CBDC). The Bank of Korea has stated that there are no immediate plans to launch a CBDC, however, the pilot program will allow the central bank to be prepared in the future if the changing market conditions require its issuance.

This pilot program comes at a time where China’s central bank digital currency has said to be ready to roll out. Six central banks around the world have come together to create a working group to share experiences on use cases on central bank digital currency. With significant expertise in exploring digital currencies, these six central banks are the Bank of Canada, Bank of England, Bank of Japan, European Central bank, Sveriges Riksbank in Sweden, and the Swiss National Bank, along with the Bank of International Settlements.

The pilot program began in March 2020 and is set to run for 22 months, until December 2021. Theoretical research was conducted a month prior to the launch of the program, and the initial phase will allow the central bank to define the requirements and design of the CBDC, and this phase will take until July 2020.

According to the announcement, the central bank emphasized that the bank will not be pushing out a CBDC any time soon, but the bank wishes to be prepared in case there will be a need for it in the future.

South Korea’s largest bank files trademark application for crypto custody service

The largest bank in South Korea, KB Kookmin Bank has revealed its filing of a trademark application for KB Digital Asset Custody (KBDAC), its crypto custody service.

The crypto custody service will be made available for assets including Bitcoin (BTC) and Ether (ETH). The trademark application was filed with the Korean Intellectual Property Office, as reported by a local news outlet.

The application stated that the bank could potentially launch the service shortly, and also means that the entity has already begun the branding of products and the development has almost been finalized.

KB announced its partnership with Atomrigs Lab in June 2019, to develop a crypto custody service leveraging a product that secures crypto utilizing multi-party computation (MPC) technology which Atomrigs Lab specializes in. MPC technology generates random key parts rather than a single private key. These key parts can be stored separately to protect the assets from the vulnerability of being stolen.

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Bank of Korea Acquires Samsung-Backed BankSign Blockchain Platform, Seeking to Deploy the Platform at Local Banks

The Bank of Korea has signed a memorandum of understanding with the Korea Financial Settlement Service (KFSS) to take over the management of BankSign blockchain authentication certificate service.

In 2018, the Korean Federation of Banks collaborated with Samsung SDS, a subsidiary of Samsung Group to launch the BankSign to offer blockchain solutions to local banks.

The BankSign is a blockchain-based authentication service designed to transform mobile and online banking by enabling faster and secure verifications.

With confirmation from one bank, the blockchain service enables users to carry out multiple account transactions across different banks. The service is recognized as a gamechanger not only for the banking industry but also for the mainstream blockchain adoption rates in the country.

The Central Bank Responding to Change

On 13 July 2020, South Korea’s central bank announced acquiring the Samsung-backed blockchain authentication services for the further use case of the blockchain platform in the Korean banking industry.

The BankSign blockchain platform is set to replace the “digital ID” (DID) system being used by banks in the country. Although the digital authentication certificate service is integrated into many banking and government services, it fails to offer proper services to clients because of several flaws in it.

Based on the partnership, both the Bank of Korea and the KFSS plan to completely replace the digital authentication service by BankSign by the end of 2020.

A bank representative mentioned: “I expect through that collaboration, we will be able to realize cost reduction, service improvements, and discovery of new businesses,” with the assistance of resources provided by the MOU.

The new system is expected to significantly enhance user experience with value-added services, reduce operational costs, and help banks to discover potential and new revenue streams.

The coronavirus pandemic has rapidly increased the demand for mobile and online banking services as a means to avoid face-to-face contact. The BankSign blockchain platform automates several mundane manual tasks like documentation management, payment settlements, and data consultation, hence paving the way for a digital future.

South Korea Seeking to Bring Crypto to the Mainstream

South Korea continues to be a vital market for cryptocurrency. As a result, authorities have been making recommendations to consider legislation to bring crypto-assets into the mainstream. South Korea’s parliament recently put forward a bill that could see cryptocurrency profits taxed by up to 20%. However, after years of discussions, the government is expected to announce comprehensive details of how to tax crypto transactions.

South Korea is not the only country seeking to revise its tax law to cover cryptocurrencies. Australia, the UK, and the US all tax cryptocurrencies as assets. By developing a proper regulatory framework, South Korea is, in the long-run, positioning itself to benefit from new regulated markets. The legislation aims to help bring crypto-related activities in South Korea in line with the FATF’s requirements to prevent terrorist financing and money laundering by making rules for crypto transactions and requiring companies to adopt greater accountability.

South Korea’s CBDC Pilot to Enter into Distribution Phase Next Year

South Korea’s central bank is looking to start the testing of the distribution of its central bank digital currency (CBDC) next year, as stated in a local news outlet. According to the announcement, the pilot scheme for the CBDC will soon begin with its distribution phase, with the digital won entering circulation.

The Bank of Korea first announced that it will be launching a 22-month CBDC pilot program, that will be running until December 2021. The first phase, which ended in July, involved the designing and checking of the technology behind the digital currency.

The second phase focused on analyzing related processes and seeking external consultation, which has started recently. Phase 3 will be the last and final phase of the pilot, with the distribution and circulation of the country’s CBDC. Blockchain technology will be used for keeping track of the transactions.

The Bank of Korea has not yet announced a launch date for the CBDC, but is continuously testing it out. South Korea has kept a lukewarm stance on central bank digital currencies, and the central bank would take at least more than one year for an official rollout.

Chinese CBDC processed 1.1 billion yuan

In the race to be the first country to launch a functional central bank digital currency, China has been ahead of its counterparts, as it has already begun experimenting with its digital currency.

The pilot version of the digital currency released by the PBOC is rumored to have been used in 3.13 million transactions. The transactions’ total worth translates to more than 1.1 billion yuan ($162 million).

The Digital Currency Electronic Payment (DCEP) is meant to transform China’s economy and propel it at the forefront of other countries in terms of economic global competitiveness. Boasting of being the world’s second-largest economy, China aims to be the first to achieve a full-fledged official CBDC, as the trend of cashless and contactless payments has accelerated with the COVID-19 pandemic.

However, it had been said that the Chinese CBDC would not be running on blockchain, but merely serve the purpose of replacing physical cash, which again has accelerated the necessity of the DCEP.

South Korea Seeks Tech Partner to Build the Pilot Program for CBDC

According to a Reuters report, South Korea’s central bank on Monday said it would choose a technology supplier to build a pilot platform for a digital currency, moving a step closer to creating a central bank-backed digital currency.

South Korea, through its apex financial institution, the Bank of Korea, is seeking a technology partner to help advance its pursuit of a Central Bank Digital Currency (CBDC).

The pursuit of a CBDC amongst major economies has taken a new leap in 2021. The United Kingdom and the US have now officially joined the rally that picked momentum with the COVID-19 pandemic. The pursuit of these new forms of money across the board is backed by realising that cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and stablecoins are gaining traction in global payment systems. Central Banks are jostling to debut their own digital currency to keep fiat currencies relevant in today’s digital world.

The Bank of Korea said it would choose the tech partner based on an open bidding process. The exercise’s primary aims will be to research the practicalities of launching a central bank digital currency (CBDC) in a test environment.

“The share of cash transactions are decreasing significantly,” a BOK official told a news conference. “The steps we are taking now are to prepare for the changes in the payment settlement system, changing rapidly.”

The test program, which is billed to span from August to December this year, is expected to see the simulations of central banks and retail money outlets. According to the Bank of Korea, the trials will include payment via mobile phones, fund transferring and making deposits.

Other prominent Asian countries with active CBDC pursuits include China, Hong Kong, and Japan. China is leading the race as the country has entered into the retail/commercial testing phase for its Digital Yuan program.

Bank of Korea Initiates CBDC Pilot Plan on Samsung Galaxy Smartphones

Bank of Korea has announced a pilot plan to launch its CBDC (Central Bank Digital Currency) through the Galaxy smartphones of Samsung Electronics, a South Korean multinational electronics company.

The Central Bank of South Korea is looking to offer CBDC as an alternative for physical currency. The Central Bank started its pilot program on June 28, 2021which is planning to test the practicalities of digital payments using Galaxy smartphones.

Unnamed bank executive at Korea’s Central Bank stated that the pilot program aims to assess whether it is possible to carry out the transfer of funds (payment remittances) through mobile smartphones using the CBDC with no availability of internet connection or to send the digital currency payments to other mobile smartphones or other connected bank accounts.

The pilot program will run into two phases. The first phase will run until December this year to examine the technology’s suitability. On the other hand, the second phase, which is expected to run from January until June next year, will explore the practicalities of real-life transactions and settlements of the CBDC.

Suppose the Bank of Korea’s pilot program succeeds. In that case, South Korea will be one of the first nations to provide a CBDC alternative to services like Google pay and Apple pay, which enable contactless phone payments without the need for an internet connection.

Making Cryptocurrency Trading Easier

Blockchain has immensely entered the business world, with almost every business and industry niche proving it practically impossible to overlook the importance of this technology.

As a result, various startups and established brands have entered the blockchain landscape, with Samsung, based in South Korea, taking the lead. The electronics giant company took multiple steps towards developing its presence in the blockchain market.

Since 2019, Samsung has been integrating crypto assets into its smartphone hardware. The company started with the S10 model with its built-in cryptocurrency wallet. The S20 model followed it in 2020, which expanded the storage for private cryptocurrency keys in its Galaxy model devices. Samsung introduced a wallet that enables users to store cryptocurrencies such as Bitcoin and others on their devices and make contactless payments using crypto assets.

South Korea's Digital Won Project Sees First Trial Stage Completed

In a press release issued on Monday, the Bank of Korea (BOK) said that it has completed the first stage of its Central Bank Digital Currency (CBDC) or Digital Won trials.

Many central banks worldwide are reconsidering the use of fiat currencies in their economies as the financial revolution is taking centre stage across the board. South Korea ranks as one of the most developed Asian economies exploring the launch of a CBDC, with the country setting up a panel to accelerate its CBDC pursuit as far back as June 2020.

As reported by the Yonhap News Agency, the first trial was launched back in August 2021 and completed in December, with the result revealing that the CBDC showed normal operations in a cloud-based environment.

While the milestone recorded in the just concluded first trial stage is significant to the development of the Digital Won, the apex bank said there are more functionalities to test out in the second stage.

“We will confirm the possibility of operating various functions, such as offline settlements, and the application of new technologies, such as one intended to strengthen privacy protection during the second phase of the test,” the BOK said in a press release.

The second phase of the trial is billed to commence right away and is expected to span until June 22 this year.

While no Asian central bank has officially launched a CBDC to date, the People’s Bank of China (PBoC) can be credited for developing the world’s most sophisticated CBDC to date. The country’s e-CNY project has been in advanced testing for a very long time. The PBoC has notably developed a digital wallet for the new legal tender accessible on Chinese-focused Google Play Store and Apple’s App Store, respectively.

The timeline for the launch of the e-CNY is not yet known, but the CBDC is drafted to be used at this year’s Beijing Olympics games by foreign athletes.

Bank of Korea Prepares for 2024 Public Trial of Its Central Bank Digital Currency

The Bank of Korea, South Korea’s central bank, is setting the stage for its first public trial of a Central Bank Digital Currency (CBDC) in 2024.

Sources from the financial sector indicate that the Bank of Korea is about to kick off a competition to generate scenarios for the establishment of a CBDC private distribution system. The bank initiated a technical review for the launch of a CBDC in 2020, and after setting up a payment platform that operates both online and offline, it completed a practice test with local banks last year.

The Bank of Korea is planning to start a competition for micro-payment CBDC testing this July, targeting financial institutions that were involved in the CBDC practice test last year. This initiative will lay the groundwork for a CBDC pilot test aimed at the private sector next year.

The CBDC being put to the test is designed for micro-payments, which means it will be available to everyday financial consumers. CBDCs are usually divided into two types: macro-payment CBDCs used for transactions between banks, and micro-payment CBDCs used by all economic participants, including the general public.

The effective rollout of micro-payment CBDCs depends on the collaboration between the Bank of Korea and local banks. While the Bank of Korea could potentially plan the distribution of macro-payment CBDCs, creating a detailed retail distribution system at the grassroots level could be challenging.

Last year, 15 organizations, including five major local banks – KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH Nonghyup Bank – took part in the CBDC linkage experiment with the Bank of Korea. The bank is expected to choose from these organizations to finalize the retail distribution structure of the CBDC and move forward with private testing.

The Bank of Korea has been maintaining close communication with banks until recently, wrapping up the CBDC infrastructure linkage test, and aims to finalize the retail scenario within this year. It seems that the transition into actual private operations will begin from next year.

The Bank of Korea has recently expanded the digital currency research team and plans to undertake a broader range of studies in the future. However, the specific timeline and plan for private testing cannot be disclosed at this time.

The strategies and research methodologies for the introduction of CBDCs have varied based on the economic conditions of each country. While developing countries have been pushing for the launch of CBDCs for financial inclusivity, developed countries have been focusing on the stability of their financial systems. However, with the decline in cash transactions and the spread of private digital currencies, developed countries are also showing interest in micro-payment CBDCs.

CBDCs are gaining significant momentum in the global financial landscape. Recently, the Bank of England took a leap forward by constructing a CBDC payment infrastructure and conducting operational tests in collaboration with the Bank for International Settlements (BIS). Adding to the momentum, the European Union (EU) unveiled a legislative draft on the 28th, outlining the introduction of the digital euro. This digital euro, a legal virtual asset, is set to serve as legal tender within the eurozone. Meanwhile, China’s version of CBDC, the digital Yuan, is making strides in practical applications, including housing funds and other scenarios, in select cities

Italy and South Korea's Central Banks Forge a Path in CBDC Development

The Bank of Italy and the Bank of Korea have recently formalized their collaboration through a Memorandum of Understanding (MOU) signed on December 5, 2023. This partnership marks a pivotal moment in the exploration and potential implementation of digital currencies by central banks, reflecting a growing global interest in the digitization of national currencies.

The essence of this MOU lies in mutual knowledge-sharing, specifically focusing on Information and Communication Technology (ICT) as it supports real-time settlement systems and CBDCs. This cooperative venture is not the first of its kind between these two banks. Previously, they have engaged in joint efforts, such as the collaboration with the Monetary Authority of Singapore and the International Monetary Fund on a paper discussing purpose-bound money (PBM). PBM, an innovative concept in the realm of digital currencies, enables money to be earmarked for specific uses, ensuring its utilization aligns with predetermined objectives.

In parallel, the Bank of Korea has been actively engaged in the CBDC space, with notable steps taken in October, when it announced a trial of a wholesale CBDC in collaboration with the Bank of International Settlements. This initiative aims to evaluate the feasibility of using wholesale CBDCs as settlement assets for tokenized bank deposits. The pilot program is designed to explore various CBDC design models and does not necessarily indicate an imminent full-scale implementation in Korea.

On Italy’s end, the Bank of Italy has been proactively exploring the potential impacts of a CBDC on the economy. In a paper published in July, the bank examined the implications of a CBDC on residents’ choices in a small open economy, with a particular focus on the banking system and economic activity. This research forms part of Italy’s broader initiative to aid financial institutions in understanding and experimenting with tokenized assets, including partnerships with entities like Polygon Labs and Fireblocks.

In conclusion, the MOU between Italy and South Korea’s central banks is more than a bilateral agreement; it’s a reflection of a global shift towards a digitized financial future. As these and other countries delve deeper into the world of digital currencies, the financial landscape is poised for significant transformation.