Bank of Korea Plans to Explore Wholesale CBDC

The Bank of Korea (BoK) is starting a new experiment with digital money, also known as a wholesale central bank digital currency (CBDC). They are doing this project with the Bank for International Settlements (BIS) and other groups. The main goal is to check if a money system based on digital cash can work in the future. The test will see if CBDC can be used for settling deals between banks using a special kind of digital deposit. 

In this team effort, researchers from BIS will work closely with the Bank of Korea (BOK) and some South Korean financial rule-makers will watch over the project. These include the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS). Deputy Governor Lee Myung-soon said on Wednesday that this experiment is a big step towards making a model for future money systems because the BoK has been studying CBDC technologies for a while.

Even though the BoK has already tested CBDCs for regular people, it concluded that there's no need for it right now because Korea's payment systems already work well. Deputy Governor Bae Joon-Suk mentioned, "Even though we don't need to issue CBDC now, we must be ready for possibly doing so in the future." The difference here is that wholesale CBDCs are for financial companies, not the general public.

A New System by BIS

This test by the Bank of Korea (BoK) is happening at the same time as when the Bank for international Settlement (BIS) is creating a new system, called the Unified Ledger. This system plans tocombine CBDCs, digital money from banks, and other digital items into one network that can be programmed. The BIS’s plan for this system is to use smart contracts (a kind of digital agreement) to make funding more stable and prevent unfair free-riding. The BIS believes this new system could change supply chain financing by fixing issues like late payments and the need for early financing for suppliers through real-time information in smart contracts.