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The Bank of Korea has selected three regions for candidates to pilot its central bank digital currency (CBDC). None of the three are Seoul, the capital of the country. Instead, the central bank is looking at Jeju, Busan, and Incheon.
According to local media outlet, ItChosun, as part of the pilot, the Bank of Korea plans to experiment with payments and distribution at a public level and secure franchises that accept payments via CBDC before selecting one of the regions for the testing location. An official from a commercial bank in Korea also revealed that Busan has a large number of eligible citizens, making the Bank of Korea lean towards selecting Jeju, which has the second-largest population among the candidates.
One of the bank’s officials also reported to have said: “The CBDC electronic wallet app will allow not only local residents but also many civilians, such as tourists to [partake].”
The regional closed tests of the CBDC will be similar to how current local currency schemes were issued and distributed during the COVID-19 pandemic as part of a basic income and relief payment solution in the country. The local currency scheme has fewer technical barriers to overcome compared to CBDCs. Despite this, multiple banks in South Korea are researching stablecoins as CBDC alternatives for the sake of efficiency.
What is a central bank digital currency?
A CBDC is a digital form of a country’s national currency that is issued and regulated by the country’s central bank. The aim behind a CBDC is to provide a digital equivalent and alternative to physical cash. They are designed to be secure and offer an efficient means of conducting digital transactions. While the technology they rest on is the same, CBDCs are distinct from blockchain-based cryptocurrencies like Bitcoin ($BTC) and Ethereum ($ETH), which are fundamentally decentralised and not issued or controlled by any central authority.
The motivations behind CBDC projects vary across countries but typically they aim to achieve goals such as enhancing payment efficiency, promoting financial inclusion, reducing transaction costs, and addressing the challenges posed by cryptocurrencies and private digital currencies.