Bank of Korea Explores Jeju, Busan, and Incheon for Citizen-Centric CBDC Pilot Test
The Bank of Korea (BOK) is reportedly reviewing three potential locations for a pilot test of a citizen-centric payment system utilizing the Korean Won central bank digital currency (CBDC). Instead of choosing Seoul, the nation’s capital city, the BOK is considering Jeju, Busan, and Incheon for the pilot. That’s according to local tech news outlet IT Chosun.
The three cities have been selected as possible testbeds, and discussions with commercial banks are ongoing to move the project forward. Once a city is chosen, the BOK will collaborate with local retailers, including hypermarkets, to test the CBDC payment and distribution system.
Regional currency model
The CBDC test will be limited to a specific area, operating similarly to regional currencies issued by municipal governments to stimulate local economies. The CBDC wallet app will be available to all citizens, but its usage will be restricted to retailers in the designated area. Presently, Jeju, Busan, and Incheon already have their own regional currencies managed by local banks and financial institutions.
However, implementing the CBDC system poses technical challenges. In remote tests last year, the BOK discovered that transaction speeds for small transfers were slower compared to traditional payment processing providers in regions outside the Seoul Metropolitan Area.
Against this backdrop, the BOK seeks to recruit an unusually large number of tech experts in order to build a large-scale system for small payments. The bank has been actively hiring individuals for this purpose since the beginning of the year.
CBDC test next year
With the test scheduled for next year, the BOK aims to promptly select the test destination based on the system’s expected performance, estimated user numbers, and potential economic impact.
While Busan is more or less shunned due to its large population, Jeju is emerging as a preferred choice. However, the final decision has been tentatively postponed due to internal issues within the BOK.
Following the pilot test results, the BOK may gradually broaden the scope of the CBDC system. Meanwhile, in a similar development, China began its CBDC pilots in 2020 and has now expanded its CBDC use to 26 cities across 17 provinces.
According to a BOK official, the Korean central bank is making seamless preparation for the test and engaging in discussions with commercial banks to explore their operating models and devise effective implementation strategies.
