The central bank of the East Asian country – Bank of Korea (BoK) – has reportedly carried out the first stage of its two-part mock testing of its CBDC in December. The institution also revealed that the project is currently running its second phase.
CBDC on Its Way in Korea
The Bank of Korea successfully completed the program’s first stage in December last year, but the local media outlet – The Korea Herald – reported the news today (January 24). During that phase, the central bank examined the most basic functions of the financial product, such as its issuance, distribution in a cloud-based virtual environment, and production.
The ongoing second stage will review the necessary technology for its actual employment. Wiring and payment offline and trading digital assets acquired in December will now be tested.
The bank expects to finalize the project in June this year. Later on, it intends to discuss the actual launch and commercialization of the CBDC with the Korean authorities. The institution also has plans to expand the scope of the experiment by teaming up with monetary entities.
Numerous central banks across the globe like the People’s Bank of China, Bank Negara Malaysia, the Central Bank of Nigeria, and more have become part of the global competition to issue their own digital form of national currencies.
Despite being one of them, the Bank of Korea warned that such a financial product could have side effects. Those might be fully revealed when the CBDC officially sees the light of day, the institution predicted.
South Korea’s central bank also doubted that CBDCs could fully replace cash rather than savings in banks as most major economies believe.
“We are testing a slew of measures that could minimize the negative impacts of the digital currency on financial stability,” the institution concluded on its way to conduct the matter.
Pluses and Minuses of a CBDC
While releasing a digital form of a national currency is the main goal for several nations, the actual benefits of such a product are still dubious. Many experts believe the potential qualities of a CBDC should be thoroughly examined before jumping into action.
The Federal Reserve is a proponent of that approach. Previously, the central bank of the USA said it is better to be “right than first” on launching a central bank digital currency.
A few days ago, the Fed outlined that the monetary product could have controversial aspects. It could boost the payment options between individuals, businesses, and even countries. On the other hand, a CBDC would work against people’s freedom and might not benefit America’s financial stability.