The Bank of Korea has completed the first phase of a central bank digital currency (CBDC) simulation testing in December 2021. Now, the regulator is going to proceed with the next phase.
The first phase of the simulation testing checked basic functionalities of the digital currency like manufacturing, issuing and distribution, according to an official report of the central bank published on Monday. All of the testings have been conducted under a simulation environment and the central bank concluded that the digital won ‘works normally’.
The Korean regulator has been working on a digital version of the won since April 2020. However, the BoK is very specific that any testing does not imply that it has plans to launch a CBDC.
Next Phase
Now, the second phase is aimed to test other real-world functionalities of the digital fiat that include cross-border remittance, retail payments and offline payments. In addition, it will test personal information enhancement technologies.
“We will confirm the possibility of operating various functions, such as offline settlements, and the application of new technologies, such as one intended to strengthen privacy protection during the second phase of the test,” the bank stated.
Additionally, the South Korean central bank is considering onboarding financial institutions as partners in the second phase, which is scheduled to be completed by June 2022.
South Korea has become one of the very few advanced economies to actively test a CBDC. However, China still remains at the forefront with its digital yuan. Despite the People’s Bank of China’s aggressive testing across different social groups and cities, the launch date of eCNY is not known yet.
A committee of the British parliament recently flagged the risks associated with a possible digital version of the pound sterling and concluded that such a CBDC would possess the risk of a bank run during a financial crisis.
