South Korea is advancing its efforts to implement a central bank digital currency (CBDC) by narrowing down three potential regions for a pilot project. The Bank of Korea has identified Jeju, Busan, and Incheon as candidates for the private target CBDC test bed, excluding the country’s capital, Seoul, according to a report from a local South Korean media outlet on July 31, 2023.
The pilot project aims to explore the issuance and distribution of the CBDC, and the Bank of Korea plans to select one of the aforementioned regions for experimentation. The process will include testing payments and distribution at a public level and securing franchises that can accept payments via CBDC. An official at the bank stated, “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 the current local currency scheme in place in various regions of South Korea. This local currency scheme was introduced during the COVID-19 pandemic as a basic income and relief payment solution. Jeju, Busan, and Incheon currently issue and distribute their local currencies, known as “Tamranjeon,” “Dongbaekjeon,” and “Incheon e-Eum,” respectively.
An official from a commercial bank in Korea reported that the choice was greatly inclined to Jeju, which has the second-largest population, as the number of eligible citizens in Busan is “so large that the Bank of Korea is burdened in many ways.”
The CBDC initiative in South Korea has been part of a broader exploration in recent years, with the country working on the project since at least 2020. Multiple banks in South Korea have also released information that they are conducting research on stablecoins as CBDC alternatives for efficiency purposes.
The local currency scheme has fewer technical barriers to overcome compared to CBDCs, according to the report. The pilot project’s success could pave the way for a more comprehensive implementation of CBDCs in South Korea, aligning with global trends in digital currency development.
Previously, South Korean electronics giant Samsung has joined forces with the Bank of Korea to cooperate on new CBDC research, including offline CBDC payment technology. This collaboration aims to enhance payment security and explore innovative solutions for digital currency utilization.
The South Korean CBDC pilot project represents a significant step in the country’s digital currency evolution and reflects the growing interest in CBDCs worldwide.
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