South Korea’s central bank governor, Rhee Chang-yong, emphasized the urgency of addressing Central Bank Digital Currencies (CBDCs) during the 2023 MOEF-BOK-FSC-IMF International Conference on Digital Money.
Stablecoins’ surge raises systemic concerns
Governor Chang-yong expressed apprehensions about the burgeoning popularity of stablecoins in the country, warning that their widespread adoption as a digital payment method could threaten the financial system’s stability. He highlighted the potential risks of stablecoins overshadowing central bank money, undermining monetary policies, and creating instability in the financial ecosystem.
CBDC: A vital response to evolving financial dynamics
Recognizing the fast-paced evolution of digital currencies, the governor asserted that CBDCs are no longer a mere research project but a crucial initiative that demands immediate attention. He underscored the importance of CBDCs in mitigating challenges faced by the traditional finance system, including high transaction fees, sluggish settlement processes, and concerns over fraudulent claims in government-issued voucher systems.
Bank of Korea’s comprehensive plan for CBDC testing
Governor Chang-yong’s call for action aligns with the recent collaborative effort between the Bank of Korea (BOK), the Financial Services Commission (FSC), and the Financial Supervisory Service (FSS). The trio unveiled a comprehensive plan aimed at testing the feasibility of CBDC use cases in both retail and wholesale settlements.
As part of the pilot program, the central bank plans to enlist 100,000 citizens to test CBDC usage in payments in 2024. This initiative is set to be a pivotal step in gauging the feasibility and effectiveness of introducing CBDCs into the financial landscape. The move is not merely a response to the rise of stablecoins but a strategic effort to address systemic challenges and improve the efficiency of financial transactions.
In embracing the organic shift toward digital currencies, South Korea’s central bank envisions CBDCs as a solution that goes beyond competing with stablecoins. The strategic move aims to revolutionize local payment chains, enhancing efficiency and addressing challenges that have persisted in traditional finance.
Nonetheless, as South Korea embraces the inevitability of digital currencies, Governor Rhee Chang-yong’s call for immediate action on CBDCs reflects a commitment to maintaining financial stability amid the rising tide of stablecoins.
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