[Digital Won is Coming]④Advanced Countries Also Contemplate Introducing Digital Currency

Major Advanced Countries Focus on Institutional CBDC Research
Retail CBDC Adoption Centered on Emerging Countries
Higher Possibility of Institutional CBDC Introduction in South Korea

With 94% of central banks worldwide operating projects to introduce Central Bank Digital Currency (CBDC), the atmosphere regarding actual adoption varies from country to country.

In South Korea, research related to CBDC has been underway since 2020, centered on the Bank of Korea, with recent focus on wholesale (institutional) CBDC research. Although the actual adoption of CBDC has not yet been decided, South Korea is more likely to introduce institutional CBDC before retail CBDC. This is because private payment methods such as mobile banking and various payment apps are already well developed, reducing the incentive to introduce retail CBDC.

CBDC is a digital form of legal tender issued by central banks and is divided into retail CBDC and wholesale CBDC depending on the scope of use and users. The CBDC adoption process is generally classified into four stages. Stage 1 is research and investigation, Stage 2 is Proof of Concept, Stage 3 is pilot testing, and Stage 4 is final launch.

According to a 2023 survey by the Bank for International Settlements (BIS) targeting 86 countries, 94% of respondents are conducting CBDC-related projects. Research is also progressing smoothly. The percentage of countries reporting being in Stage 2 increased from 42% in 2019 to 54% in 2023, and those in Stages 3-4 rose from 10% to 31% during the same period. Currently, South Korea's CBDC research is classified as being in Stage 3, the pilot testing phase.

However, countries that have actually launched and are operating CBDCs are still limited to some emerging nations. Currently, countries that have launched and are using CBDCs include the Bahamas' Sand Dollar, Nigeria's eNaira, and Jamaica's Jam-Dex. These countries share common characteristics of high cash dependency and low bank account ownership among their citizens, aiming to improve financial infrastructure by introducing retail CBDC.

Major Countries Focus on Institutional CBDC Research... "Little Justification for Retail CBDC Adoption"

Recently, major countries have been focusing more on institutional CBDC research than retail. In advanced countries, various private payment methods such as mobile banking and payment applications are already well developed, so unlike emerging countries, there is insufficient justification to introduce retail CBDC. In the Eurozone (20 countries using the euro), the retail CBDC project (Stella) initiated in 2016 remains in the research phase (Stage 1). In contrast, the institutional CBDC project (Digital Euro) started in 2022 and has now entered the pilot phase (Stage 3). The European Central Bank (ECB) plans to promote adoption as early as November next year if the institutional CBDC pilot project is successfully completed.

In the United States, the Federal Reserve's (Fed) CBDC project has been progressing at a moderate pace since research began in 2016. However, concerns about government surveillance or control of transactions and privacy infringement have led to many opposing views, resulting in a somewhat cautious stance.

A Bank of Korea official explained, "Basically, many countries research both retail and institutional CBDCs, but in the past, research focused on retail CBDC, and recently, retail CBDC has been introduced mainly in emerging countries," adding, "Recently, major countries such as the U.S. and Europe have been focusing more on institutional CBDC research."

Some central banks have recently hinted at temporarily suspending retail CBDC adoption. The Reserve Bank of Australia recently stated in conference speeches and reports that "the potential benefits of retail CBDC in Australia are currently minimal or uncertain compared to the difficulties it would bring," and "there is no strong justification to issue retail CBDC in Australia at this time." The Bank of Canada also announced that it would "reduce retail CBDC research and focus more on broader payment system research and policy development."

On the other hand, there is generally a positive response to the introduction of institutional CBDC. The Reserve Bank of Australia said, "How digital currency and infrastructure in the form of wholesale CBDC can improve market functions will be a major focus of future research programs," and "currently, wholesale CBDC appears to have greater potential benefits and fewer issues compared to retail."

Bank of Korea Also Focuses on Institutional CBDC... "Payment Systems Are Highly Developed"

South Korea is also recently focusing on institutional CBDC research centered on the Bank of Korea. After establishing a dedicated CBDC research team in 2020, the Bank of Korea concentrated on retail CBDC research until the end of 2022. However, recently, the focus has shifted to institutional CBDC, and since October last year, the Bank of Korea, the Financial Supervisory Service, and the Financial Services Commission have jointly been conducting a "CBDC usability test." Since April this year, they have been working on the "Agora Project," an international payment improvement project, together with the Bank for International Settlements (BIS) and the Institute of International Finance (IIF).

Kim So-young, Vice Chair of the Financial Services Commission (center), is speaking at the joint press conference on the plan to promote the usability test of CBDC held on the afternoon of the 4th at the Bank of Korea Integrated Annex in Jung-gu, Seoul.
From left, Yoo Sang-dae, Deputy Governor of the Bank of Korea, Vice Chair Kim, and Lee Myung-soon, Senior Vice Chair of the Financial Supervisory Service. Photo by Joint Press Corps

In November last year, the Bank of Korea, the Financial Supervisory Service, and the Financial Services Commission announced plans to promote the CBDC usability test, stating, "Considering that South Korea's payment system is highly developed, preparations for retail CBDC adoption will be pursued in the long term by enhancing related research and development capabilities." This essentially means focusing on research for retail CBDC while considering actual adoption for institutional CBDC.

Lee Chang-yong, Governor of the Bank of Korea, also stated at the Bank of Korea's national audit on the 14th, "The government believes that issuing retail CBDC is unlikely because consumer demand will not be met due to external competition," adding, "Therefore, we are promoting a plan to issue institutional CBDC centered on banks, tokenize bank deposits, introduce CBDC, and then allow private competition."