South Korea is moving to the next phase of its central bank digital currency (CBDC). The country has selected three cities for the pilot phase of the project, for issuing and distribution of the CBDC.
The Bank of Korea which is the body in charge of the pilot has exempted the country’s capital, Seoul from the project. The selected cities for the “private target CBDC test bed” are Jeju, Busan, and Incheon.
According to the bank, the regional closed tests of the CBDC will be similar to the issuance and distribution of the current local currency scheme in place in various regions of South Korea.
All selected regions currently issue and distribute their own local currencies such as ‘Tamranjeon’, ‘Dongbaekjeon’, and ‘Incheon e-Eum’, respectively as part of a basic income and relief payment solution introduced during the COVID-19 pandemic.
After the private pilot, the bank intends to use just one of the selected cities for experimenting with payments and distribution at a public level, as well as securing franchises that can accept payments via CBDC. For this phase, Jeju was selected for its moderate population size compared to Busan.
“In the case of Busan, the number of eligible citizens is so large that the Bank of Korea is burdened in many ways, so the opinion was greatly inclined to Jeju, which has the next largest population,” an official from a commercial bank explained.
“The CBDC electronic wallet app will allow not only local residents but also many civilians, such as tourists to [partake],” an official of the bank reportedly said.
Overcoming technical barriers
The testing of the CBDC will be similar to the local currencies distribution project, but will require a lot more technical effort to overcome certain barriers.
The Bank of Korea had tested the payment performance of the CBDC mock system remotely using rural areas for about six months in 2022 and found that it was slower than most local payment operators in transaction speed. This necessitated the involvement of more capable hands to make the CBDC more competitive.
“As the Bank of Korea is planning a large-scale retail payment system project soon, it is in need of an exceptionally large number of IT personnel. A large number of related personnel, including large companies, are on the move,” he explained,” An official from the IT industry said.
CBDC progress in countries
CBDCs have become popular among countries. Notable among them is China, which has made significant progress with its own project. The digital Yuan project has gone through the pilot phase, and is currently being tested for international settlements.
Other countries such as Russia are also making progress with President Putin signing the digital Ruble law, making it possible for the country to finalize the CBDC project.
