The Bank of Korea, the central bank of South Korea, is setting the stage for its first public test of a Central Bank Digital Currency (CBDC) in 2024.

Sources from the financial sector indicate that the Bank of Korea is about to launch a competition to generate scenarios for the establishment of a private CBDC distribution system. The bank started a technical review for a CBDC launch in 2020 and, after setting up a payment platform that operates both online and offline, completed a practice test with local banks last year.

The Bank of Korea plans to launch a micropayment CBDC trial competition this July, targeting financial institutions that participated in the CBDC practice trial last year. This initiative will lay the groundwork for a CBDC pilot targeting the private sector next year.

The CBDC being piloted is designed for micropayments, meaning it will be available to everyday financial consumers. CBDCs are generally divided into two types: macropayment CBDCs used for bank-to-bank transactions and micropayment CBDCs used by all economic participants, including the general public.

The effective deployment of micropayment CBDCs depends on collaboration between the Bank of Korea and local banks. While the Bank of Korea could potentially plan for the distribution of macro-payment CBDCs, creating a detailed retail distribution system at the grassroots level could be challenging.

Last year, 15 organizations, including five major local banks (KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH Nonghyup Bank), participated in the Bank of Korea CBDC linkage experiment. The bank is expected to choose between these organizations to finalize the CBDC’s retail distribution structure and move forward with private testing.

The Bank of Korea has been in close communication with banks until recently, ending the CBDC infrastructure linkage trial, and aims to finalize the retail scenario within this year. It seems that the transition to real private operations will start from next year.

The Bank of Korea has recently expanded the digital currency research team and plans to conduct a broader range of studies in the future. However, the specific schedule and plan for the private tests cannot be disclosed at this time.

Research strategies and methodologies for the introduction of CBDCs have varied depending on the economic conditions of each country. While developing countries have been pushing for the launch of CBDCs for financial inclusion, developed countries have been focusing on the stability of their financial systems. However, with the decline in cash transactions and the spread of private digital currencies, developed countries are also showing interest in micropayment CBDCs.

CBDCs are gaining significant momentum in the global financial landscape. The Bank of England recently took a step forward by building a CBDC payment infrastructure and conducting operational tests in collaboration with the Bank for International Settlements (BIS). Adding to the momentum, the European Union (EU) unveiled a legislative draft on the 28th, outlining the introduction of the digital euro. This digital euro, a legal virtual asset, is set to serve as legal tender within the eurozone. Meanwhile, China’s version of CBDC, the digital yuan, is making leaps and bounds in practical applications, including housing funds and other scenarios, in select cities.