[The Editors' Verdict] Post-COVID-19: Introduction of Central Bank Digital Currency

As the post-COVID-19 era arrives, discussions on the introduction of central bank digital currencies (CBDCs), which had been stagnant, are gaining momentum. The first introduction of digital currency to us was Bitcoin, issued in the form of virtual currency in 2009. When the 2008 financial crisis broke out, the U.S. central bank printed an enormous amount of dollars through quantitative easing, causing the absolute value of the dollar to decline. Bitcoin emerged in opposition to this. Unlike central banks that can print money at will, Bitcoin has no such institution. To maintain the value of the currency, the maximum number of coins that can be issued is limited, and counterfeiting is impossible. The price of one Bitcoin initially ranged from several cents to $20,000, and currently maintains around $11,000. However, Bitcoin has issues with stability due to its high price volatility.

In 2020, the novel coronavirus disease (COVID-19) plunged the global economy into crisis. The U.S. central bank is printing more dollars than in 2008, continuing quantitative easing. Whether as a reaction to this, discussions on the introduction of central bank-issued digital currencies are actively progressing. Digital currency refers to currency whose monetary value can be stored, transferred, or traded in electronic form. It represents a shift from analog cash to digital-based currency. It is expected to be applied in various fields by combining technologies such as blockchain and big data.

Digital currencies issued by central banks have higher stability than virtual currencies because they are directly managed and supervised by the government. Virtual currencies guarantee anonymity, which can be exploited for illegal purposes such as money laundering or tax evasion, but central bank digital currencies can be kept under control. They can guarantee transaction anonymity and, if necessary, restrict anonymity. They can accelerate the transition to a 'cashless society' and be used as a tool for monetary policies such as price stability. Unlike paper money, they have almost no manufacturing cost, enabling cost reduction and lowering distribution expenses. The underground economy can be formalized, and financial transparency can be enhanced. On the downside, security issues such as hacking may arise, and the risk of personal information infringement may increase.

Countries are making the introduction of digital currencies a foregone conclusion, and the first central bank digital currency is expected to be introduced in China. The People's Bank of China formed the world's first central bank digital currency research team in 2014 and has been conducting research since then. Since May, it has begun pilot testing of the digital yuan. China plans to fully introduce the digital yuan during the 2022 Beijing Winter Olympics. While the stated purpose of introducing the digital yuan is convenience such as cost reduction, the real goal is to make the digital yuan a global reserve currency in the digital economy era, countering the U.S. dollar-centered international financial order. The U.S., which viewed digital currencies as a challenge to dollar hegemony, has shifted to an active stance to block China's leadership in digital currency. The European Central Bank (ECB) is also researching central bank digital currencies through a network of experts from 18 European central banks. The Bank of Japan announced plans to conduct pilot and demonstration projects in July.

The Bank of Korea is currently testing the introduction of digital currency and strengthening cooperation with foreign countries. Developing a digital currency suited to domestic conditions and utilizing it in various public services could contribute to formalizing the underground economy by tracking illegal funds. It is also worth considering focusing on currency reform issues such as 'redenomination,' which have been controversial, alongside the introduction of a 'digital won.' Central bank digital currencies in the post-COVID-19 era seem poised to bring about tremendous change. It is time to prepare swiftly.

Im Juhwan, Advisor, Korea Information and Communication Industry Research Institute

This content was produced with the assistance of AI translation services.