South Korea to begin digital currency pilot in late 2024 with 100,000 citizens joining experiment

One hundred thousand South Koreans will be able to use deposit tokens based on the country’s central bank digital currency (CBDC) next year, within a pilot programme jointly operated by the Bank of Korea (BOK) and financial authorities.

The BOK, Financial Services Commission and Financial Supervisory Service announced the plans, following the visit of Agustin Carstens, general manager of the Bank for International Settlements, to the BOK on Thursday.

The plans are a developed version of an earlier announcement made in October that disclosed the central bank’s intention to have real-world experiments on CBDC.

Under the pilot project, 100,000 selected individuals can purchase goods with deposit tokens issued by commercial banks in the form of CBDC, similar to using a voucher at stores. Selected commercial banks will recruit participants around September to October of the following year, and will continue the project for three months.

Bank of Korea governor Rhee Chang-yong, left, poses for a photo with general manager of the Bank for International Settlements Agustin Carstens, during a seminar on Thursday. Photo: EPA-EFE/Yonhap

The BOK said the digital currencies have the potential to significantly address challenges with existing voucher systems, such as special grants awarded during Covid-19 and childcare grants offered by the government. The challenges include high transaction fees, slow settlement processes, limitations of post-transaction verification and concerns over fraudulent claims.

However, participants will be restricted to using the currency solely for its designated payment purposes. Other uses, including personal remittance, will not be permitted at this time.

Additionally, technological experiments will be conducted to evaluate the feasibility and effectiveness of issuing and distributing these new forms of financial products.

For instance, the BOK will collaborate with the Korea Exchange, the country’s sole securities exchange operator, to integrate the CBDC into a simulation system for carbon emissions trading. This will include testing the feasibility of delivery versus payment transactions between carbon emissions rights and the payment tokens.

“Following consultations with relevant organisations and a review of related laws, the pilot project will be conducted first in the fourth quarter of 2024. The possibility of conducting separate pilots will be considered as well if banks propose new individual projects,” an official from the BOK said.

Carstens, who had a meeting with BOK governor Rhee Chang-yong on the same day, referred to the project as “digital won”, and positively evaluated the central bank’s efforts to approach the future monetary system.