"CBDC is Completely Different from Bitcoin, Requires Perfect Preparation" [Digital Won is Coming] ⑤

"CBDC, Completely Different from Bitcoin in Terms of Trust and Security"
"Decision Made Through Legal and Institutional Preparations and Social Consensus"
Interview with Yoon Sung-kwan, Head of Digital Currency Research Department at BOK

"Central Bank Digital Currency (CBDC) is a currency issued by central banks and is a completely different concept from cryptocurrencies like Bitcoin in terms of reliability and security. Although research is still ongoing, if it is actually introduced, it will be decided through social consensus based on a perfect technical foundation and legal and institutional preparations."

With the development of the digital economy and the spread of stablecoins (cryptocurrencies issued with a fixed value to existing currencies such as the US dollar), central banks around the world have begun researching CBDCs, and the Bank of Korea is recently accelerating its CBDC research.

Last November, the Bank of Korea announced a detailed plan for the 'CBDC Usability Test' together with the Financial Services Commission and the Financial Supervisory Service and is currently conducting related research. Since April, it has also participated in the 'Agora Project,' which studies ways to improve cross-border payment settlements using tokenized bank deposits and CBDCs, involving the world's five major reserve currency countries (the United States, the United Kingdom, Japan, France, and Switzerland), Korea, Mexico, the Bank for International Settlements (BIS), and the Institute of International Finance (IIF). A real transaction test involving 100,000 general users is also planned for early next year.

Yoon Sung-kwan, Head of the Digital Currency Research Department at the Bank of Korea, is being interviewed by Asia Economy at the Bank of Korea headquarters in Jung-gu, Seoul. (Photo by Park Jae-hyun)

Yoon Sung-kwan, head of the Digital Currency Research Department at the Bank of Korea, who is responsible for CBDC research, emphasized in an interview with Asia Economy on the 15th that it is important to prepare perfectly rather than rush the introduction of CBDC. The Digital Currency Research Department is the department in charge of promoting the CBDC project and conducting technical research at the Bank of Korea. Since 2020, the Bank of Korea has established a dedicated organization for CBDC and has been steadily conducting research on CBDC and distributed ledger technology.

Head Yoon Sung-kwan: "Even if CBDC is introduced, cash will continue to be issued... It is completely different from cryptocurrencies"

CBDC is a new form of currency. It complements existing currency rather than replacing cash (banknotes and coins). Head Yoon explained, "Even if CBDC is introduced, cash will obviously continue to be issued," adding, "CBDC is a currency issued by the central bank with high trust and security, so it is a completely different concept from cryptocurrencies like Bitcoin."

With the introduction of CBDC, several advantages such as the efficiency of voucher programs can be expected. Head Yoon said, "CBDC, as a public currency infrastructure, can be universally used by anyone compared to existing cards and private payment services," and added, "Also, since real-time payments are made, long settlement periods are not necessary."

He continued, "By utilizing programming functions such as distributed ledger technology (a technology where the ledger recording transaction information is distributed across a shared network and jointly recorded and managed by participants), payment conditions and usage conditions are embedded in the currency itself, enabling more efficient operation of voucher programs," and added, "Through CBDC, problems that previously took a lot of time due to complex procedures and country-specific regulations and incurred high fees can also be solved."

However, the functions and effectiveness are expected to vary greatly depending on the circumstances and how it is introduced. He said, "Currently, we are exploring what design and operation methods of CBDC are most suitable for our economy," and added, "Digital currencies based on distributed ledger technology are known to be able to add various programming functions to the currency using smart contracts, so we need to test whether financial companies can provide innovative services to consumers that were previously impossible or inefficient."

There are also concerns about side effects from the introduction of CBDC. He said, "Concerns have been raised mainly regarding universal CBDC about weakening banks' fund intermediation functions and privacy protection," and evaluated, "Before deciding on the introduction of CBDC, these concerns must be thoroughly reviewed in advance, and various safety measures must be established before actual introduction."

"Expanding research on institutional CBDC... Perfect preparation is important"

Central banks of major countries are actively conducting research and preparations for the introduction of CBDC. Some emerging countries such as the Bahamas, Nigeria, and Jamaica have already officially introduced CBDC. Head Yoon said, "Major central banks are carrying out related work with sufficient time under the recognition that it is more important to prepare perfectly rather than rush the introduction," and added, "Countries that have already officially introduced CBDC have the particularity that their payment systems are less developed and financial inclusion is insufficient."

Korea has recently expanded its research scope from focusing on universal CBDC to institutional CBDC and deposit tokens. He explained, "In Korea, interest in blockchain technology is high, and capabilities in related fields are excellent," and added, "Also, since many projects using deposit tokens, such as the Agora Project, are being conducted worldwide recently, the research scope has been expanded."

"No set timing for CBDC introduction... It will be decided through social consensus"

The actual timing of CBDC introduction is still unknown. Head Yoon said, "There is no specific decision yet on whether or when to introduce CBDC," and added, "The decision on whether and when to introduce CBDC will be made through social consensus after establishing a perfect technical foundation and legal and institutional preparations, considering the research trends and introduction status of CBDCs in major countries."

The Bank of Korea plans to conduct a real transaction test of CBDC with up to 100,000 general citizens next year. Participants in the real transaction test will open electronic wallets at banks, convert their deposits into deposit tokens, and then use the deposit tokens as a payment method at designated usage locations. He explained, "It may seem not much different from existing private electronic payment services," but added, "In this test, we also plan to implement and test several small voucher programs through CBDC and deposit tokens by utilizing the programming functions of digital currency."