The Bank of Korea to initiate ‘Hangang’ CBDC pilot with 100,000 citizens next month

The Bank of Korea has announced that it will hold trials for its Central Bank Digital Currency (CBDC) project from April to June. The bank said the pilot project referred to as “Hangang” will involve 100,000 participants.

“Hangang” is also expected to include seven major banks such as KB Kookmin, Shinhan, Hana Bank, and Woori Bank. BOK revealed in 2023 that it also plans to conduct technological experiments to test the CBDC’s feasibility, including integrating the CBDC into a simulation system for carbon emissions trading.

South Korean Central Bank kicks off CBDC trials starting next month

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The Bank of Korea has revealed that it will commence trials for its CBDC project called “Hangang” from April to June in collaboration with the country’s Financial Service Commission (FSC) and Financial Supervisory Service (FSS). The bank said the project will involve 100,000 participants and seven major local banks, including Kookmin, Shinhan, Woori, Hana, Industrial Bank of Korea, Nonghyup, and Busan.

The BOK’s pilot CBDCs will allow participants to convert their bank deposits into tokenized deposits to pay local vendors, including convenience stores, coffee shops, supermarkets, and online shops. The financial institution also acknowledged that mobile banking apps would make payments via QR payment methods.

The bank maintained that the maximum number of deposit tokens an individual participant can hold is one million Korean won, roughly $689. Individual participants will also be allowed to add to their one million won deposit token limit up to a total maximum of five million won. The bank will let participants convert the tokenized bank deposits back into cash.

The Bank of Korea said that it will use “Hangang” to examine whether distributed ledger technology can replace the traditional settlement method of local banks that rely on central bank reserves. The bank’s representative reportedly highlighted that tokenized deposit payments can reduce the involvement of third parties in transactions and enable merchants to receive real-time settlements.

“However, we plan to closely monitor any future discussions, particularly those centered around the IMF, regarding the potential inclusion of virtual assets in foreign exchange reserves.”

-Bank of Korea representative.

The South Korean central bank recently announced it hasn’t considered creating a Bitcoin reserve in its foreign exchange holdings. The financial institution believes that digital currencies like BTC do not satisfy IMF standards for such reserves.

The move followed the Bank of Korea announcing formal plans for such a trial in 2023 and a wholesale central bank digital currency (wCBDC) for interbank settlement. On November 6, the bank signed an agreement with the Ministry of Science and ICT (MSIT) and the Financial Services Commission (FSC) for the usability tests. 

South Korea plans to include a digital voucher management platform

The country’s FSC also stated that the pilot will include a digital voucher management platform that will allow the government to distribute and track vouchers. The bank’s previous disclosures indicated that the vouchers will use Singapore’s purpose-bound money (PBM) model. The PBM model wraps the deposited token in a smart contract that defines the token’s conditions of use.

South Korea’s central bank believes virtual currencies could effectively tackle various issues common in current voucher systems. The bank suggested they could tackle issues like those used for special grants during the COVID-19 pandemic and government-provided childcare. The BOK hopes they will help alleviate high transaction fees, delay settlement times, and the risk of fraudulent activities.

The BOK also outlined two other potential virtual currency use cases in 2023, including one for an e-money token fully backed by the wCBDC and issued on the shared ledger. The bank argued that e-money tokens could be issued by commercial banks and potentially by other payment service providers in the future.

The financial institution mentioned that digital currency tokens would be a separate type of e-money tokens once they are minted on third-party blockchain platforms. The bank argued that the tokens would have to be backed by e-money tokens issued on the shared CBDC ledger because they are issued on a third-party platform.

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