The central bank of the East Asian country - Bank of Korea (BoK) - reported that it carried out the first phase of its mock two-part test of its CBDC in December. The institution also revealed that the project is currently running its second phase.
CBDC on its way to Korea
The Bank of Korea successfully completed phase one of the program in December last year, but local media - The Korea Herald - reported the news today (January 24). During that phase, the central bank examined the most basic functions of the financial product, such as its issuance, distribution in a cloud-based virtual environment and production.
The second phase underway will examine the technology needed for its effective use. Wiring and offline payment and digital goods trading acquired in December will now be tested.
The bank expects to finalize the project in June this year. Later, it intends to discuss the actual launch and commercialization of the CBDC with the Korean authorities. The institution also plans to expand the scope of the experiment by partnering with monetary entities.
Numerous central banks around the world such as the People's Bank of China, Bank Negara Malaysia, Central Bank of Nigeria, and others have joined the global competition to issue their own digital form of national currencies.
Despite being one of them, the Bank of Korea has warned that such a financial product could have side effects. These could be fully revealed when the CBDC officially sees the light, the institution predicted.
South Korea's central bank has also doubted that CBDCs can completely replace cash rather than savings in banks, as most large economies believe.
“We are testing a number of measures that could minimize the negative impacts of the digital currency on financial stability,” concluded the institution in its way of conducting the matter.
Advantages and disadvantages of a CBDC
While releasing a digital form of a national currency is the main focus for several nations, the actual benefits of such a product are still questionable. Many experts believe that the potential qualities of a CBDC should be thoroughly examined before taking action.
The Federal Reserve is a supporter of this approach. Earlier, the US central bank said it is better to be "right than first" about launching a central bank digital currency.
A few days ago, the Fed pointed out that the monetary product could have controversial aspects. It could increase payment options between individuals, businesses and even countries. On the other hand, a CBDC would work against people's freedom and may not benefit America's financial stability.