Digital Assets: South Korea Backtracks on its Central Bank Digital Currency
South Korea may consider a central bank digital currency (CBDC) after all.
Contrary to indications it gave in January 2019, the Bank of Korea said on December 1 that “we are considering issuing digital currency (CBDC).” That’s a huge about-turn from South Korea’s central bank’s January stance. “There is no plan to issue a CBDC in the near future because CBDC is not incentive to respond to the reduction of cash use or to increase financial inclusion.” (translated)
Do China and the ECB have something to do with the rethink?
China has made substantial progress towards a digital yuan according to a top Chinese official. The Chinese central bank had completed top-level design, formulation, functional research, and testing of the digital yuan. In fact, it would very soon proceed towards pilot projects to test the Chinese CBDC.
Earlier this month, the ECB said the European System of Central Banks (ESCB), had established a proof of concept (PoC) for anonymity in digital cash.
The PoC “demonstrates that it is possible to construct a simplified CBDC payment system that allows users some degree of privacy for lower-value transactions. At the time it ensures that higher-value transactions are subject to mandatory AML/CFT checks,” according to the ESCB report.
Further, the system revolves around intermediaries (Tier2) that will interact between the users and the central bank (Tier1). They have access to central bank accounts and can draw on balances to issue CBDC to the users.
Even the IMF has weighed in on central bank digital currencies:
“Several countries are working on improving existing payment systems to match the speed and convenience of digital currencies. For example, we understand from published sources that the Federal Reserve is developing so-called fast payments. These allow nearly instantaneous and low-cost settlement of inter-bank retail payments (the Federal Reserve’s “FedNow” initiative).”
However, senior Fed officials have also sounded off on the the need to set up a digital US currency.
South Korean city Seoul’s Zero Pay digital payments system a non-starter?
According to one report, Seoul city’s mobile payment app Zero Pay, launched in December 2018, is yet to take off.
According to analysts, the app could not match the benefits and convenience offered by rival apps. These include apps such as Payco, Kakao Pay and Samsung Pay. “Zero Pay was at a disadvantage from the beginning as it was a latecomer in the payment market,” said an industry official.
With the G7 also looking positively at CBDCs, South Korea may have decided to change its tune in favor of a CBDC.
Related Story: Digital Assets: A World-beating Digital Yuan Taking Shape?
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