What Are the Benefits of Participating in the Bank of Korea's Digital Currency Experiment? [Financial Microscope]

Usage Locations, Immediate Payment of Sales Proceeds, and Fee Reduction
Users Can Manage and Use Vouchers in One Place... Enhanced Convenience
Bank of Korea: "Significance in Establishing Infrastructure to Adopt New Technologies Within the Institutional Framework"
"Individual Account Management by Each Bank... System Not Controllable by Government"

The Bank of Korea will launch a digital currency real transaction experiment called 'Project Hangang' targeting 100,000 citizens over three months starting from the 1st of next month. The digital currency issued by the Bank of Korea this time will circulate only among banks and other financial institutions, and individuals will only use deposit tokens issued by banks, not directly hold the digital currency, which differs from the typical central bank digital currency (CBDC).

How Will the Digital Currency Experiment Be Conducted?

This real transaction experiment will take place from April 1 to June 30. From the 25th, applications began through designated applications (apps) of seven participating banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, IBK Industrial Bank, BNK Busan). South Korean citizens aged 19 or older can apply at any of these banks where they have a demand deposit account. However, the number of participants is capped at 100,000, with Kookmin, Shinhan, Hana, Woori, and Nonghyup banks each recruiting 16,000 people, and IBK and Busan banks each recruiting 8,000 people on a first-come, first-served basis.

From the 1st of next month, participants can convert their bank deposits into deposit tokens up to a limit of 1 million KRW and make payments at about 20,000 affiliated stores including convenience stores, cafes, bookstores, marts, and online shopping using a dedicated QR code. Since payments are made by displaying a QR code on a smartphone, the method is similar to payments made through various pay services. Offline stores among the usage locations include Kyobo Bookstore, 7-Eleven, Ediya Coffee, and Nonghyup Hanaro Mart, while online shopping malls include Hyundai Home Shopping, Mode House, and Ttaenggyeoyo. During the experiment period, the deposit token holding limit is 1 million KRW, and the total conversion limit is 5 million KRW. After the real transaction experiment ends, the remaining deposit tokens held by users will be collectively deposited back into their demand deposit accounts.

Usage Locations, Immediate Payment of Sales Proceeds, Fee Reduction... Increased Convenience for Users Using Vouchers

Deposit tokens are transferred immediately from the consumer's wallet to the seller's wallet right after payment. Accordingly, sellers can receive sales proceeds instantly. There is also a fee reduction effect. During the experiment period, no fees will be paid to the banks issuing the electronic wallets. Even after commercialization, fees are expected to be reduced compared to other payment methods such as cards or pay services, as the number of intermediary institutions will be reduced.

The most noticeable improvement in consumer benefits is when using 'digital vouchers' linked to government policies. This opens the way to manage and use vouchers for various fields such as education and culture within a single app. This experiment will utilize Seoul City Youth Culture Pass, Daegu education supplies store-exclusive vouchers, and vouchers for university and nearby stores targeting new students at Busan Silla University. Real transactions related to the digital voucher program are expected to begin in April and May.

From the government's perspective, the effect of voucher distribution can also increase. When resources such as nationwide disaster relief funds during the COVID-19 outbreak are distributed in the form of vouchers, the usage locations can be more clearly specified to vulnerable self-employed businesses, and fraudulent receipt of local government subsidies can be prevented.

Bank of Korea: "Significance in Establishing Infrastructure to Adopt New Technologies Within Institutional Framework"

Digital transactions have already become routine. The Bank of Korea emphasized the significance of establishing a new digital currency infrastructure that allows banks to utilize new technologies within a safer institutional framework amid the emergence of token-based alternative products.

Through this experiment, the plan is to check whether the stage where digital currency is used in daily life to purchase goods and services and payments are made to usage locations in real time operates smoothly. Reflecting necessary improvements in the future, the Bank plans to advance the system by discovering additional use cases such as peer-to-peer transfers based on programming functions. Once programming-based transfers become possible, it can be used to restrict the usage of children's allowances to stationery stores, for example.

"Individual Account Management by Each Bank... System Not Controllable by Government"

Regarding concerns about possible government control, the Bank of Korea drew a clear line, stating that it is 'impossible by system design.' The digital currency issued by the Bank of Korea circulates only among participating banks. Individuals only use deposit tokens issued by these banks as payment means linked to the digital currency, and cannot hold the digital currency issued by the Bank of Korea. Yoon Seong-kwan, head of the Bank of Korea's Digital Currency Research Office, emphasized, "This structure is different from 'retail CBDC' held by individuals," and "the design itself prevents (the government or the Bank of Korea) from viewing or accessing individuals' deposit token transaction histories."

The Bank of Korea and participating banks will also operate a 24-hour emergency response organization during the real transaction period to ensure stable system operation. Yoon explained, "Although it should not happen, if a malfunction occurs, temporary issues can be resolved with simple measures, and a decision-making system for partial or full suspension situations has also been established."