- Korea’s central bank, in collaboration with the Bank for International Settlements (BIS), announces a wholesale CBDC pilot.
- This initiative aims to act as a settlement asset for tokenized deposits and investigate the BIS’ Unified Ledger concept.
The Korean Digital Currency Ambition
The Bank of Korea (BoK) today unveiled its roadmap for a wholesale central bank digital currency (CBDC). In partnership with the Bank for International Settlements (BIS), the primary aim of the wholesale CBDC is to serve as a settlement mechanism for tokenized deposits made by commercial banks. Additionally, this initiative seeks to delve deep into the BIS’s innovative Unified Ledger concept.
Historically, the central bank had conducted retail CBDC trials but later determined that the current efficient payments system didn’t necessitate a retail CBDC. However, their quest for technological advancements hasn’t waned; they remain committed to furthering offline CBDC tech and prioritizing privacy-enhancing innovations.
Exploring New Frontiers in Digital Currency
Central to the wholesale CBDC project is the desire to harness Korea’s local blockchain expertise to revolutionize payments and financial services. In fact, recent developments have highlighted the forward momentum of asset tokenization in Korea’s regulatory sandbox environment. The tokenization movement isn’t the only driving force here. The inherent programmability of tokenized deposits offers tremendous advantages. Notably, this venture marks BIS’s inaugural exploration into the Unified Ledger, a framework wherein both the CBDC and other tokenized assets coexist on a singular network.
While discussing the Unified Ledger, the BIS clarified that this doesn’t mean a single dominant ledger will replace all existing systems. Instead, envision a central-bank-managed core infrastructure working in synergy with supplementary systems, which other entities oversee.
Initially, the BoK will grant access only to commercial banks. Yet, the doors might open to other payment providers in the future, contingent upon obtaining regulatory permissions.
A Kaleidoscope of Digital Currency Forms
Beyond the wholesale digital won, the central bank envisions a trio of digital currencies. First, there are programmable tokenized deposits. Additionally, commercial banks, and possibly even payment providers, might issue e-money, backed equivalently by the wholesale CBDC. Another variant is digital currencies designed for circulation on alternate platforms. For instance, a Distributed Ledger Technology (DLT) platform, such as a carbon exchange, would need a dedicated settlement token. Intriguingly, this would be supported by tokenized e-money, which closely mirrors a synthetic CBDC.
Collaborative Digital Architecture
Accompanying the central bank, commercial banking entities will operate nodes on the mutual permissioned blockchain, chronicling digital currency transactions and ownership. A significant aspect to observe is the introduction of a “Tokenised voucher” — a digital currency tailored for specific utilization. This concept shares similarities with Singapore’s ‘Purpose Bound Money’. Importantly, before any voucher distribution, the central bank will meticulously assess the underlying smart contract.
For seamless interaction with diverse networks, the BoK is exploring a plethora of methods, encompassing asset transfers via bridges to other ledgers and asset exchanges using Hashed TimeLock Contracts (HTLC). The latter entails a change in asset ownership across separate ledgers, without physically transferring the asset.
As this venture unfolds, a potent collaboration is brewing. The Bank of Korea, Financial Services Commission, and Financial Supervisory Service are teaming up with other regulators, kickstarting their search for a competent IT system integrator.
