A local media outlet reports that South Korea's central bank will begin pilot testing its CBDC digital currency, the digital won, in 2021 after completing Phase 1 of its project.
Since several private companies such as Facebook made public their intentions to issue a multi-currency, private and global digital currency, countries such as China, Japan, the United States and several others around the world began to develop studies and research on the feasibility and importance of creating a digital currency issued by the central bank (CBDC) to safeguard its monetary sovereignty. South Korea joins this initiative with the Spanish President Pedro Sánchez’s announcement from its Central Bank, which is set to begin pilot testing its CBDC, the digital won, next year.
South Korea's central bank completed Phase 1 of its project in July this year, a phase focused on the design and verification of the technology that will support its digital currency, the blockchain.
Now, with everything ready to begin testing, the Central Bank of South Korea will begin the experimental phase in 2021 that will last until December of that year, a time that the entity considers prudent to analyze and verify all the processes related to the issuance of this digital currency, its effectiveness, its use cases and also to seek external consulting for optimal development.
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The Phases of South Korea's CBDC
In July 2019, the country's Central Bank announced a Roadmap where it detailed the steps to follow to study the possible issuance of a CBDC digital currency and its influence on the financial stability of the nation. In the roadmap, the entity outlines 3 phases: Phase 1, aimed at studying blockchain technology and the design of the currency for the digital won; Phase 2, focused on carrying out experimental tests that demonstrate the feasibility, viability and use cases of the digital currency; and Phase 3, the final phase of the project where the Central Bank of South Korea will put the CBDC digital currency into circulation and within reach of its citizens. In this last phase, the entity will distribute and supervise the entire circulation process of the digital currency.
However, before reaching this stage, the South Korean central bank plans to test the functioning of the digital currency and, of course, the digital infrastructure that supports it. The tests will involve various actors external to the central bank, such as financial services companies, commercial law firms and information technology (IT) firms that will act as external consultants to oversee the development and operation of the digital currency.
Blockchain and CBDC in the coming years
According to the bank's plans, the digital won will be ready for distribution and circulation between 2022 and 2023, although there is no exact date for its launch. In reality, everything will depend on the results obtained by the bank during the pilot tests; in addition, the Central Bank of South Korea indicated that beginning the tests of the digital currency is not an indication that it will definitely be launched.
Nevertheless, the entity published a technological development plan, BOK 2030 Ten-Year Plan, whose main focus is the adoption of blockchain technology within financial systems and the issuance of a CBDC digital currency. The entity's development plan is framed within a 10-year period, so there may still be some time to go before the issuance of a real digital won. However, the entity is already implementing a certification and authentication system for the banking sector based on blockchain, which allows traditional banking platforms to migrate to a more robust, efficient and effective digital system.
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