The Bank of Korea has completed its digital currency issuance and distribution pilot testing. It has also been stated that the central bank digital currency testing program will be ready by June 2022. In December, the Bank of Korea completed the first step of its two-part mock testing of the Central Bank Digital Currency. BOK has now gone on to the next round of testing, having completed the first stage’s testing “smoothly.” This initial phase of testing began in August of last year.
Only until the second level of testing is completed will BOK be ready to begin distributing and commercializing the CBDC. BOK examined various basic capabilities of the digital currency in the initial phase of testing, primarily those related to money distribution and issuance. Before establishing this new form of money, the initial stage was also concerned with challenges while producing the Digital Currency and running it in a simulated environment.
Other Functions Implementation Plans
Following the completion of the first-stage testing, the Bank of Korea expressed interest in broadening the CBDC’s scope. It intends to grow through incorporating and collaborating with financial institutions.
“During the second phase of the test, we will confirm the ability to operate various functions, such as offline settlements, and the use of new technologies, such as one aimed to increase privacy protection,” the BOK stated in an official news release.
Following the outcomes of the first testing phase, BOK stated its intention to incorporate further initiatives, such as offline payments and personal information protection upgrade technologies.
The second round of testing will now analyze and assess all necessary technology for its ultimate launch. This will primarily cover wire transfers and payments in an offline environment, as well as CBDC testing and trading. After the second round of testing is completed, BOK will undertake an inspection by performing usability research in collaboration with financial institutions.
Several other institutions, like the People’s Bank of China, the Central Bank of Nigeria, and Bank Negera Malaysia, have begun to implement their goal of introducing digital versions of national currencies.
CBDC’s Potential Side Effects
It is vital to remember that CBDCs have their drawbacks, which will be revealed once the currency is officially introduced. South Korea’s Central Bank stated that CBDCs will never be able to replace fiat currencies but may only be used for bank savings.
The Federal Reserve is of the same mind, having previously emphasized that it is preferable to get it right rather than being the first to issue such digital currencies. It may be advantageous in individual deals, but it may jeopardize America’s financial stability.
