South Korea Set to Trial CBDC for Real Transactions at Select Stores

Highlights:

• South Korea is set to test a CBDC by allowing users to use deposit tokens for real transactions at select stores.
• The Bank of Korea will pilot the CBDC for three months.
• The test may lead to the adoption of the CBDC if the program turns out to be successful.

South Korea plans to start testing its central bank digital currency (CBDC) this month through a transaction experiment with 100,000 consumers and seven banks. The Bank of Korea (BOK) will work with the Financial Services Commission and the Financial Supervisory Service to oversee the trial. The test period will enable the selected users to conduct real-world transactions using deposit tokens provided by commercial banks. The testing phase will include institutions such as KB Kookmin, Shinhan, and Hana Bank.

Bank of Korea to begin CBDC test for 100,000 consumers: report

South Korea's central bank is reportedly set to launch a real transaction test for its central bank digital currency this month, involving 100,000 consumers and seven banks

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Consumers will be able to use deposit tokens for purchases at merchants such as 7-Eleven, Kyobo Book Centre, and the delivery app Ddaenggyeoyo. BOK may extend the three-month pilot period to ensure that different institutions coordinate. The trial start date might change to April if the need to postpone arises. The Bank of Korea initiated CBDC implementation research four years ago and used previous tests to evaluate technological solutions without assessing real-world commercial applications.

How the CBDC Trial Will Work

The trial will assess whether banks can successfully issue deposit tokens and whether consumers can use them for payments. Participating customers can obtain deposit tokens with a maximum limit of 1 million won ($688). Customers can pay for items they purchase by using QR codes across designated stores.

Seven financial institutions, including KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, Industrial Bank of Korea, and Busan Bank, will provide the tokens. The token system functions as electronic vouchers that allow consumers to finish transactions at participating businesses. The test will assess the transaction speed and user experience when making payments with CBDC in everyday life.

The BOK has expanded the research capacity of its digital currency division to support a streamlined implementation process. The Digital Currency Research Lab is now responsible for all duties that belonged to the Financial Settlement Bureau’s Digital Currency Research Department. The central bank recruited additional staff to assist with managing both the testing execution phase and investigating trial results.

Global Interest and Future Prospects

Other countries are in the process of conducting CBDC experiments. The European Union is expanding the development of a wholesale central bank digital currency payment system to settle transactions between institutions. Meanwhile, President Trump recently signed an executive order barring the country from establishing a CBDC.

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The Bank of Korea wants to test if CBDC can transform financial transactions and payment services while decreasing transaction expenses. A successful test might speed up the official development of digital currency under government control. The government aims to give an alternative to the growing use of virtual assets in the country.

The actual transaction test was originally scheduled to be conducted at the end of last year. The authorities will assess the findings of the pilot program to determine the future steps in the development plan of the CBDC.