Discover the groundbreaking partnership as Bank of Korea and BIS join forces for the Korean Wholesale CBDC Pilot. Stay updated with the latest developments in central bank digital currencies.
Seoul, South Korea – In a groundbreaking move, the Bank of Korea (BoK) has announced its collaboration with the Bank for International Settlements (BIS) to embark on a wholesale central bank digital currency (CBDC) pilot program. This ambitious project, set to reshape the landscape of digital currencies, is aimed at serving as a settlement mechanism for tokenized deposits initiated by commercial banks. The partnership also marks the BIS’s exploration of the innovative Unified Ledger concept.
While the central bank had previously undertaken retail CBDC trials, it ultimately concluded that the existing efficient payment system did not necessitate a retail CBDC. However, this decision has not diminished the institution’s commitment to advancing offline CBDC technology and prioritizing privacy-enhancing innovations.
Bank Of Korea And The Wholesale CBDC Project
The focal point of the wholesale CBDC project is the utilization of Korea’s homegrown blockchain expertise to revolutionize payment and financial services. Recent developments in Korea’s regulatory sandbox environment have showcased the accelerating momentum of asset tokenization, underscoring the nation’s drive towards embracing digital transformation. However, tokenization alone is not the sole driving force behind this endeavor. The inherent programmability of tokenized deposits offers a wealth of advantages. Notably, this initiative represents the BIS’s first foray into the Unified Ledger, a framework where the CBDC and other tokenized assets coexist on a single network.
The BIS has clarified that the Unified Ledger does not imply the replacement of all existing systems with a single dominant ledger. Instead, it envisions a central-bank-managed core infrastructure working in synergy with supplementary systems overseen by other entities.
Initially, access to the wholesale CBDC will be limited to commercial banks. However, the possibility of opening the doors to other payment providers in the future is contingent upon obtaining regulatory permissions.
A Spectrum of Digital Currency Forms
In addition to the wholesale digital won, the central bank envisions the introduction of a trio of digital currencies. The first category encompasses programmable tokenized deposits. Furthermore, commercial banks, and potentially even payment providers, may issue e-money, backed equivalently by the wholesale CBDC. Another variant is digital currencies tailored for use on alternative platforms. For instance, a Distributed Ledger Technology (DLT) platform, such as a carbon exchange, would require a dedicated settlement token. Remarkably, this would be underpinned by tokenized e-money, closely resembling a synthetic CBDC.
A Collaborative Digital Architecture
In this ambitious venture, commercial banking entities will operate nodes on a mutual permissioned blockchain, recording digital currency transactions and ownership. An intriguing addition to the digital currency landscape is the “Tokenized voucher,” a digital currency customized for specific purposes. This concept bears similarities to Singapore’s ‘Purpose Bound Money.’ Importantly, before the distribution of any voucher, the central bank will meticulously scrutinize the underlying smart contract.
To facilitate seamless interactions across diverse networks, the Bank Of Korea is exploring a myriad of methods, including asset transfers via bridges to other ledgers and asset exchanges utilizing Hashed TimeLock Contracts (HTLC). The latter allows for changes in asset ownership across separate ledgers without physically transferring the asset.
As this visionary collaboration unfolds, a potent partnership is taking shape. The Bank of Korea, alongside the Financial Services Commission and Financial Supervisory Service, is teaming up with other regulators to kickstart their search for a competent IT system integrator. This multifaceted effort is poised to propel South Korea to the forefront of the global digital currency revolution.