Over the past few months, there’s been a growing buzz about central bank digital currencies or centralized cryptocurrencies; responding to China’s efforts to digitize the yuan and the launch of Libra by Facebook and the world’s top Silicon Valley firms, the governments and monetary authorities of the world’s nations have mobilized to try and take some of the digital payment pie for themselves.
It seems South Korea is now joining the rat race.
South Korea Joins the Digital Currency Rat Race
On Monday, South Korea’s central bank, the Bank of Korea, revealed that it has launched a pilot program for testing a digital won, which is slated to run to December 2021. A release outlining this move said the program will determine if there are a legal case and ample technical capability to launch a digital currency in South Korea.
According to Yonhap, which translated the press release, The Bank of Korea doesn’t see an immediate need for a central bank digital currency (CBDC) but needs to be prepared should “market conditions” change:
The need to issue a CBDC in the near future still remains slim when considering the demand for cash that still exists, the competitive payment service market and high level financial inclusion, but there is a need to be able to quickly take steps in case market conditions at home and abroad change rapidly.
The program will purportedly have five stages, the last of which will be a full-scale pilot rollout in 2021. It isn’t clear who or what companies this stage would involve.
This comes shortly after France’s central bank revealed it is moving towards launching a digital currency experiment, seemingly a response to the Banque de France’s governor who said late last year and this year that France should have its own CBDC.
The experiment will purportedly identify the benefits and risks of a CBDC in France, with a document specifically citing how it could result in productivity gains for the financial sector and the broader economy.
Despite these efforts, China still seems to be ahead in the digital currency rat race. Per previous reports from Blockonomi, The Global Times, effectively a Chinese state-run media outlet, reported that insiders say China’s central bank is “one step closer to issuing its official digital currency.”
The outlet’s sources explained that the PBOC and private companies — purported to include China’s largest banks and telecom and tech companies — have “completed development of the sovereign digital currency’s basic function and is now drafting relevant laws to pave the way for its circulation.”
The Global Times chalked up the speed of development to the potential integration of monetary policies, such as negative interest rates, into the Chinese economy should the monetary and fiscal situation continue to develop poorly.
BIS Expects Accelerated Digital Currency Adoption
The timing of all these projects is quite auspicious.
According to an April 3rd bulletin from the Bank of International Settlements — the so-called “central bank of central banks” — the outbreak of the coronavirus across the world has accelerated the public’s distaste for cash, which was already taking place as digital systems like WeChat Pay (China), Google Pay (Western world), etc. have started to crop up.
The outbreak may result in growth in the need for central bank digital currencies, which of course cannot be infected by the coronavirus, which has purportedly been found to stick on surfaces:
Resilient and accessible central bank operated payment infrastructures could quickly become more prominent, including retail central bank digital currencies (CBDCs).The pandemic may hence put calls for CBDCs into sharper focus, highlighting the value of having access to diverse means of payments, and the need for any means of payments to be resilient against a broad range of threats.