[Inside Chodong] Bitcoin Rises with Trump's Victory, Digital Currencies Face Setback

Changhwan Lee, Deputy Head of the Economic and Financial Department

After Donald Trump's victory in the U.S. presidential election, the price of Bitcoin soared past 100 million won per coin, reaching an all-time high. This surge in Bitcoin's value is largely due to the expectation that Trump, who pledged to make the U.S. the capital of virtual assets, would boost the cryptocurrency market. Bitcoin's market capitalization has reached $1.7 trillion, surpassing the total market capitalization of all domestic stocks.

Trump, who was once a Bitcoin skeptic, has changed his stance so much that he is now called a coin evangelist. This shift is attributed to the increasing number of virtual asset holders in the U.S., especially among the younger generation, which Trump sees as an opportunity to expand his support base. It also appears that pro-virtual asset figures, including Elon Musk, have influenced and supported Trump.

While the virtual asset industry is celebrating Trump's election, central banks worldwide preparing to introduce CBDCs (Central Bank Digital Currencies) are facing deeper concerns. Trump has repeatedly expressed opposition to the introduction of CBDCs. He has declared that if CBDCs are introduced, the government could monitor individuals' currency transactions and infringe on private rights such as financial freedom, vowing to block CBDC issuance.

For central banks to issue CBDCs, each country must create and cooperate on new digital currency payment systems. If the U.S. refuses to participate, other countries are likely to lose momentum. Although the Bank of Korea is preparing for CBDC introduction ahead of many advanced central banks, concerns have grown as the likelihood of U.S. CBDC adoption diminishes.

Does this mean central banks should abandon CBDCs? Not at all. They can first introduce wholesale CBDCs, which pose far less risk of privacy invasion compared to retail CBDCs. In fact, as the Trump risk grows, major central banks are considering adopting wholesale CBDCs rather than retail ones. Since various mobile payment systems like Apple Pay and Samsung Pay are already well developed, there is no urgent need to introduce retail CBDCs. Instead, they propose using CBDCs only for interbank or cross-border transactions.

If wholesale CBDCs are introduced, financial institutions can utilize them to develop diverse and secure financial products, and voucher programs provided by governments and local authorities can become more convenient for individuals. Complex procedures and regulations that have long delayed cross-border exports and payment settlements can also be simplified through CBDCs. Because central banks issue CBDCs only to banks and not directly to the public, there is no risk of infringing on individuals' privacy.

In South Korea, the Bank of Korea and major banks plan to conduct tests on the usability of CBDCs for wholesale transactions starting next year. If banks use wholesale CBDCs issued by the Bank of Korea to issue deposit tokens with digital voucher functions, ordinary participants can purchase goods and payments will be made to merchants through this system. If deposit tokens similar to current demand deposits become active, sellers' payment fees will decrease, and separate settlement processes will be unnecessary, enabling immediate receipt of payments. This drastically reduces the settlement time compared to the approximately three-day settlement period for credit card payments.

If this experiment is successful, South Korea will undoubtedly become a leading country in CBDC development. No other major advanced country has conducted CBDC experiments to this extent. If the U.S. and other major advanced countries rapidly improve their perception of CBDCs and actually adopt them in the future, South Korea will become a global CBDC leader, so related technology development and institutional improvements must continue.