The Bank of Korea (BOK) recently released its 2022 Payment and Settlement Systems Report, signaling successful oversight of the systems and a strategic focus on the future with Central Bank Digital Currency (CBDC). The report also shed light on the discussions surrounding stablecoin regulations in South Korea.
BOK plans for the future with CBDC adoption
One significant development highlighted in the report is the planned upgrade of the BOK-Wire+ fast payment system to a real-time gross settlement (RTGS) system. The transition to RTGS, coupled with the adoption of the ISO 20022 standard, is scheduled to be implemented by 2028. These improvements aim to enhance the efficiency and reliability of payment systems in the country.
Moreover, the BOK emphasized its commitment to strengthening oversight over payment services provided by major technology companies, often referred to as “Big Tech.” Recognizing the growing significance of these platforms in the payment landscape, the BOK aims to bolster its capabilities to respond to potential IT operational risks associated with these services.
In line with the global trend, the BOK has been actively exploring the potential introduction of a Central Bank Digital Currency (CBDC). As part of its preparations, the BOK has been investigating various aspects of CBDC implementation, including the use of smart contracts, offline payments with near-field communications, and cross-border payment capabilities.
To test the functionality of its simulated CBDC system, the BOK connected 14 banks and the Korea Financial Telecommunications and Clearings Institute (KFTCI) for a trial run in the latter half of the year. The system handled an impressive 2,000 transactions per second, outperforming many existing domestic payment systems. However, the system faced some slowdowns as it approached its capacity, indicating the need for further improvements to handle higher transaction volumes efficiently.
The bank highlights research and consultation on CBDC adoption
In its pursuit of enhancing CBDC privacy, the BOK experimented with a zero-knowledge proof protocol for clearing CBDC transactions. While this protocol successfully concealed wallet addresses and payment amounts, it significantly slowed down the processing speed. The security implications of such a system, known as zkCBDC, require further investigation, and the BOK is considering alternative approaches, such as homomorphic encryption.
The BOK has laid out a comprehensive plan for future CBDC research. It aims to explore CBDC-based tokenized deposits and expand the scope of research in collaboration with banks and KFTCI. The primary focus of this research will be to identify a CBDC operating model that minimizes adverse impacts on financial system stability and monetary policy effectiveness.
Regarding crypto asset regulation, South Korea has made “concrete” progress with the introduction of the Framework Act on Digital Assets Act. However, the regulatory framework is still deemed incomplete to permit payments in cryptocurrencies. The BOK continues to engage in discussions regarding stablecoins, emphasizing the need for comprehensive regulations in this area.
The Bank of Korea’s 2022 Payment and Settlement Systems Report highlights the country’s proactive approach in preparing for the potential implementation of a Central Bank Digital Currency. By upgrading its payment systems, exploring innovative technologies, and engaging in thorough research, the BOK aims to ensure a seamless and secure transition into the realm of digital currencies.
Moreover, the ongoing discussions on stablecoin regulations signify South Korea’s commitment to fostering a robust and sustainable digital financial ecosystem. As the landscape continues to evolve, the BOK remains dedicated to adopting measures that prioritize financial stability, efficiency, and consumer protection in the emerging digital economy.
