The Central Bank Of Korea Reveals Possible Plans For Central Bank Digital Currency (CBDC)
Milestone Date: July 20, 2023
In its 2022 Payment and Settlement Systems Report, The central Bank of Korea (BOK) revealed that it has been experimenting with the idea of implementing a Central Bank Digital Currency (CBDC).
In addition to preparations to launch a CBDC, the BOK is also exploring intelligent contracts, offline payments using near-field communications, and cross-border payments. According to the report, the BOK has already been simulating a CBDC system, but cryptocurrency regulations in South Korea are still a work in progress.
Even though the pilot managed to handle an impressive 2,000 transactions every second during tests, the CBDC system apparently experienced some slowdowns when running at its maximum capability.
The BOK also tested the use of zero-knowledge (ZK) proofs to improve transaction privacy. According to the report, this test effectively concealed wallet addresses and payment amounts. But the presence of a ZK protocol also hampered transaction performance.
While there is much to do before a CDBC is a reality in South Korea, the goal of the research is to discover an approach that allows a CBDC to work without causing problems to the stability of the existing financial system and the effectiveness of Korea’s monetary policy.
By a longshot, there are more countries testing the idea of CDBCs than those that aren’t. However, not all such digital currencies necessarily require blockchain. And where central banks are experimenting with blockchain, the tests often involve private distributed ledgers that, like existing government-managed financial rails, are only permissioned for certain participants (e.g., commercial banks).
By Elizabeth Morrison
Published:July 20, 2023