South Korea’s central bank’s opinion about central bank digital currencies (CBDCs)

As per the announcement made by South Korea’s central bank in local news outlet Yonhap News Agency on 7th February, giving out a word of caution on the central bank digital currencies (CBDCs) stating that CBDC’s would not be able to introduce itself.

CBDCs are popularly also associated as state-backed or government-backed digital currencies that include a blockchain – based version of a country’s fiat currency which would be executed through two processes- either substituting themselves or outstretch in tandem with paper notes and coins.

Presently, several country’s legislations are considering the workability of using a CBDC, but recently South Korea has made it official during the last January that they would not be going ahead with the concept of CBDC.

There was a six-month consultation process from Bank of Korea (BoK) on the topic, the conclusion of which was to reject the option of CBDC finally.

Recently, as per one of the report, the central bank alleged that CBDC would lead to the maximum withdrawal of funds from private institutions, compress the liquidity and would push the interest rates in the upward direction.

One of the writer of the report, Kwon Oh-ik, describing the same to Yonhap, stated, “The CBDC is a kind of a BOK-issued bank account. People trust it more than one in a commercial bank. Demand deposits are one of the biggest sources of loans by banks. When people pull out their money, banks raise rates, or lower the reserve ratio, to secure more funds.”

Further, Seoul on the other hand in the last few weeks has taken a decision that they would not make any important changes to its conclusion on cryptocurrency. Earlier this month, lawmakers in the country had similarly ruled out a U-turn on their ban on the initial coin offerings within the country.

As per one of the report revealed during the last month by the Bank of International Settlements, which is an organization based out of Switzerland consisting of around 60 of the world’s central banks, about 70 percent of the central banks worldwide are steering some kind of CBDC research in the current year.