In a significant development, the Bank of Korea has unveiled its central bank digital currency (CBDC) pilot program, dubbed “Digital Test Project Hangang.” The Bank of Korea, in partnership with seven major banks, is set to launch the pilot program next month, with a planned duration of about three months.
Notably, the Bank of Korea intends to test the efficiency and feasibility of a CBDC-based payment system via the Hangang program. The partnering banks will issue deposit tokens for use at various retail outlets, including local supermarkets, online shopping platforms, and convenience stores.
Bank of Korea Launches CBDC Program: What To Know
According to local reports, the Bank of Korea will debut a real-world CBDC pilot program in April, possibly involving 100,000 local citizens. This trial will enable participants to exchange bank deposits for “deposit tokens” and make payments at partner merchants.
Significantly, Hangang, expected to begin in April, will possibly last for about three months. In collaboration with seven major banks, including KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, IBK Industrial Bank of Korea, and BNK Busan, the BoK will examine the potential of its CBDC for real-world transactions. Commenting on the development, a BoK official stated,
Through deposit token payments, merchants can receive settlement funds in real time. Additionally, related transaction fees are expected to be reduced by minimizing intermediary institutions in the payment process.
Beyond Traditional Finance: Unveiling the Potential of CBDCs
Through the Hangang CBDC program, the Bank of Korea intends to test the feasibility of CBDCs for real-world transactions. The BoK intends to replace the traditional payment methods with digital currencies, specifically CBDCs. Thus, the Hangang pilot program will serve as a trial.
If the Bank of Korea introduces an “institutional digital currency,” the other banks involved in the program will issue linked tokens. This process will enable consumers to use these tokens for payments. Participants in the pilot program can convert their bank deposits into deposit tokens and vice versa, allowing for seamless transactions. The central bank is expected to release a public announcement by the end of this month to recruit eligible participants.
Meanwhile, South Korea has strengthened its anti-money laundering regulations to tackle the growing crypto threats.
Will South Korea Establish a Strategic Bitcoin Reserve?
Recently, the Bank of Korea dismissed the possibility of adopting a strategic Bitcoin reserve. The bank cited price volatility and inherent risks of cryptocurrencies as a major reason. The BoK stated, “In the case of cryptocurrency market instability, transaction costs to cash out Bitcoins could rise drastically.”
This comes amid speculations of North Korea’s potential Bitcoin reserve plans as the country’s notorious Lazarus Group accumulates Bitcoin. Reportedly, North Korea flipped Bhutan and El Salvador in BTC holdings, becoming the fourth largest holder of Bitcoin.
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