Bank of Korea Governor Sees CBDC Introduction as Case for ‘Urgency:’ Report

Bank of Korea Governor, Rhee Chang-yong, has emphasized the urgency for central banks to consider introducing central bank digital currencies (CBDCs) due to the challenges posed by stablecoins. Despite their name, stablecoins often lack stability, which can reduce the effectiveness of central bank monetary policies. Rhee highlighted that the widespread adoption of CBDCs could diminish the role of central bank money and impair the effectiveness of monetary policies. In addition to this, Rhee stated that the Bank of Korea is currently working on a wholesale CBDC pilot and exploring its potential use in the tokenization of real-world assets. The bank plans to launch a retail pilot scheme involving 100,000 individuals next year. As the growth of stablecoins continues to raise concerns for central banks, the consideration and implementation of CBDCs is becoming a matter of urgency.

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Introduction

The governor of the Bank of Korea, Rhee Chang-yong, believes that the introduction of central bank digital currencies (CBDCs) is a matter of urgency. This comes as stablecoins, such as tether (USDT) and USD Coin (USDC), pose challenges to central banks due to their lack of stability. Rhee argues that the widespread adoption of stablecoins could diminish the role of central bank money and impair the effectiveness of monetary policies.

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Challenges of Stablecoins

Stablecoins are cryptocurrencies whose value is pegged to fiat currencies like the dollar or euro. While they aim to provide stability, their ability to maintain their pegs has come into question. This week, ratings company S&P introduced a system for evaluating the stability of stablecoins and rated tether, the largest stablecoin by market value, just one rank above the lowest in its five-point scale. This highlights the challenges and potential risks associated with stablecoins.

Urgency for CBDC Introduction

The challenges posed by stablecoins underscore the urgency for central banks to consider introducing CBDCs. Rhee argues that the widespread adoption of CBDCs could reduce the importance of central bank money and hinder the effectiveness of monetary policies. CBDCs would allow central banks to maintain control over the currency and implement policies to stabilize the economy more effectively.

Bank of Korea’s CBDC Pilot

The Bank of Korea is already taking steps towards the introduction of a CBDC. It is working on a wholesale CBDC pilot and exploring the use of CBDCs in tokenizing real-world assets. This pilot program will provide valuable insights into the practical applications and potential benefits of CBDCs in various sectors.

Tokenization of Real-World Assets

The Bank of Korea recognizes the potential of CBDCs in facilitating the tokenization of real-world assets. Tokenization refers to the process of representing tangible assets, such as real estate or commodities, as digital tokens on a blockchain. CBDCs can provide a secure and efficient infrastructure for the tokenization of assets, enabling fractional ownership, liquidity, and simplified transfer of ownership.

Retail CBDC Pilot Scheme

In addition to the wholesale CBDC pilot, the Bank of Korea plans to launch a retail CBDC pilot scheme involving 100,000 people next year. This scheme aims to test the feasibility and usability of CBDCs in everyday transactions. It will assess the technological capabilities, user experience, and potential impact of CBDCs on the financial ecosystem.

S&P’s Evaluation of Stablecoins

S&P’s recent evaluation of stablecoins highlights the need for cautious consideration of these digital assets. The ratings indicate that stablecoins exhibit varying degrees of stability, with some being more reliable than others. This evaluation emphasizes the importance of maintaining trust and stability in the financial system, which CBDCs can potentially provide.

Bank of Korea’s Wholesale CBDC Pilot

The Bank of Korea’s wholesale CBDC pilot aims to explore the use of CBDCs in interbank transactions and the broader wholesale financial system. By incorporating CBDCs into these systems, the bank can evaluate the efficiency, security, and potential cost savings that CBDCs can bring. This pilot program will provide valuable insights into the benefits of CBDCs for financial institutions.

Exploring CBDC Use in Real-World Asset Tokenization

The Bank of Korea’s exploration of CBDC use in the tokenization of real-world assets aligns with the global trend of digitizing tangible assets. The secure and transparent nature of blockchain technology, coupled with CBDCs, can revolutionize the way assets are managed and traded. By digitizing assets, accessibility and liquidity can be increased, opening up new investment opportunities and fostering innovation.

Widespread Adoption of CBDCs and the Role of Central Bank Money

The widespread adoption of CBDCs has the potential to redefine the role of central bank money. CBDCs can provide a digital representation of a nation’s currency, allowing for efficient and secure transactions. This may reduce the reliance on traditional forms of central bank money, such as physical cash and commercial bank reserves. However, central banks must carefully monitor and shape the adoption of CBDCs to ensure their effectiveness and stability.

In conclusion, the governor of the Bank of Korea sees the introduction of CBDCs as a matter of urgency due to the challenges posed by stablecoins. The Bank of Korea is actively pursuing CBDC pilots, both in wholesale transactions and the tokenization of real-world assets. These initiatives aim to explore the potential benefits of CBDCs and their impact on the financial system. As the adoption of CBDCs continues to grow, the role of central bank money may undergo significant changes, necessitating careful management and regulation by central banks.

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