South Korea will start a pilot for a central bank digital currency (CBDC) involving 100,000 citizens in the fourth quarter of next year.
The pilot program will be operated jointly by the Bank of Korea (BOK) and financial regulators the Financial Services Commission (FSC) and Financial Supervisory Service (FSS), according to a press release on Thursday.
The project will see 100,000 people – roughly 0.2% of the country's population – be able to purchase goods with tokens issued by commercial banks in the form of a CBDC. Use will be restricted to purchasing goods, with other applications, such as remittances, not permitted.
The likely locations for the pilot are Jeju, Busan or Incheon, according to reports in July.
The BOK sees a CBDC as a potential answer to problems with existing government-issued grant systems, such as childcare vouchers or payments during the COVID-19 pandemic. The issues with existing systems include high transaction fees, slow settlement and fraud concerns, the BOK said.
The central banks of the majority of developed economies have been exploring the development of CBDCs in recent years as a means of addressing the decline in the use of cash and the increasing preference by consumers to use digital methods of payment.
China's development of its digital yuan is the most advanced, but South Korea is among the first runners-up, having completed testing functions such as issuing and distributing a CBDC in a simulated environment in December 2021.
UPDATE (Nov. 23, 15:13 UTC): Replaces references to Korea Times' report with a reference to a BOK press release
CORRECTION (Nov. 23, 15:20 UTC): Corrects that the pilot will commence in Q4 , not Q1 as the article previously said
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