Bank of Korea Continues Research into CBDCs, Includes Crypto and Blockchain in Annual Report
According to the recently released 2018 Annual Payment Settlement Report by the central bank of South Korea, the apex bank conducted a research on Central Bank Digital Currencies (CBDC) and included said research in the report.
Earlier last year, the Korean central bank began researching CBDCs, focusing on the possibility of creation, utility and impact. It should however be noted that this report is coming after an announcement in January that the central bank – known as the Bank of Korea (BOK) -, will not release any CBDC in the near future.
At the time, an unnamed official of the BOK admitted that there were plans to do more research into the possibility of a CBDC and was quoted saying:
“We have no plans to issue any type of CBDC that is available for all people in the near future. We have to work further on benefits and costs of CBDC implementation first.”
Some Details of the Report
The report released by the BOK seems to place quite a bit of focus on a few services that could be improved using blockchain technology. According to the report, specialists strongly think that wide adoption of cryptocurrency assets will see the light of day if there’s some advancement regarding their general strength and stability.
Another interesting part of the report focuses on adoption for CBDCs and how applicable they could be for trades, major transactions among financial institutions and also for minor transactions such as small online micropayments.
Better Security for Transactions
A blockchain based distributed ledger is a great benefit for the use of a CBDC because transactions can easily be traced and obscurity with payments will be almost completely eliminated. The report also notes that transactions would be more verifiable, secure and iron-clad because of the inability of these transactions to be reversed once they have been done. It is however noted that one factor that might not change with the application of a CBDC is the time needed for these transactions to be carried out.
Effect on Financial Policy
The report claims that commercial banks could be significantly affected by the adoption of a CBDC as their current position as a go-between in the financial sector could deteriorate significantly. This is because it is expected that regular bank deposits will reduce considerably as establishments would prefer to keep these funds as CBDCs.
The report recommends a more in-depth research into the effects of CBDCs on financial policy because the indirect relegation of banks, caused by CBDC adoption, might have a substantial effect on the world’s economic and financial status.
It’s important to note here that sometime last month, the central bank did express its concern that releasing its own CBDC would terribly affect commercial banks because individuals – and not only institutions – would remove their funds from these banks and prefer to keep them in CBDCs. This will directly affect financial stability in the county because the situation will force banks to significantly increase interest rates.
Will the BOK Still Issue its own CBDC?
At the moment, even though the central bank will continue to do a lot of research on CBDCs, it has no plans for its own asset. It however does have an objective of decreasing dependence of cash which might means a solution that will involve some digital currency or the other, but probably not the bank’s own.
Currently, the central banks of Uruguay and Tunisia have their own CBDCs and a report by the Bank for International Settlements revealed that even though there isn’t any solid plan for creation and adoption yet, more than two-thirds of the world’s central banks have begun research into CBDCs.