The Bank of Korea (BOK) will begin a large-scale pilot of its central bank digital currency (CBDC) in April, allowing 100,000 participants to conduct real-world transactions using digital tokens.
Notably, the three-month trial aims to evaluate the practical use of CBDCs in payments and their potential impact on the financial system.
The pilot, named the Hangang CBDC Project, will run until the end of June in partnership with seven major South Korean banks, including KB Kookmin, Hana, NH Nonghyup, BNK Busan, etc.
According to local press, participants will have the ability to convert their traditional bank deposits into deposit tokens, which can be used for payments at selected merchants.
How the Pilot Will Work
Participants will be able to convert up to 1 million Korean won (approximately $693) into deposit tokens and use them at affiliated merchants. The total transaction cap during the pilot will be set at 5 million won per participant. Payments will be processed via QR code scanning through banking apps.
Retailers taking part in the program include Hyundai Home Shopping, Ddangyo, 7-Eleven, Hanaro Mart, Kyobo Bookstore, and Ediya Coffee.
The Bank of Korea expects the program to demonstrate how CBDCs can facilitate real-time payments while reducing reliance on intermediary financial institutions.
Testing a Digital Currency Framework
Currently, banks process transactions and settlements using reserves held at the central bank. The pilot will explore whether CBDCs based on distributed ledger technology can replace traditional banking reserves, streamlining transaction processes.
The BOK also aims to examine the broader viability of CBDC adoption in South Korea’s financial ecosystem. A key objective of the pilot is to assess CBDCs role in direct consumer transactions without reliance on third-party financial intermediaries.
Meanwhile, the pilot will also test transaction efficiency and security using distributed ledger technology (DLT).
While many countries have experimented with central bank digital currencies, South Korea’s initiative stands out for its scale and focus on real-world applications.
The findings from this pilot could influence other nations considering CBDC adoption, providing insights into consumer behavior and financial infrastructure adaptation in a digital economy.
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