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South Korea to Initiate CBDC Trials for Real-World Applications
In an important step for its financial technology landscape, South Korea’s central bank is preparing to launch trials for Central Bank Digital Currency (CBDC) transactions through the “Digital Test Project Hangang.” This initiative, according to reports from the Bank of Korea (BoK), will span three months and include participation from seven banks and approximately 100,000 individuals who will explore the integration of blockchain technology in financial services.
The trials are set to commence in April, allowing participants to convert their existing bank deposits into “deposit tokens.” Each participant will have a limit of KRW 1 million (approximately Rs. 59,000) in individual holdings, with a total maximum of KRW 5 million (around Rs. 2.95 lakh) permitted throughout the duration of the pilot, as reported by Korea Times. The BoK is expected to outline comprehensive guidelines for those interested in joining the trial by the end of this month.
In facilitating the trial, the BoK will distribute CBDC tokens to banks, which will in turn issue deposit tokens to the trial participants. These tokens are intended for use in transactions at designated stores and merchants, as claimed by Business Korea. Participants will be able to complete payments through QR code scanning at participating locations.
By the conclusion of the trials, the BoK aims to deepen its understanding of the practical applications of Web3 technologies. The evaluation will focus on whether CBDCs can effectively replace traditional payment methods, simplify financial transactions by minimizing the role of intermediaries, and reduce transaction costs.
The pilot program is expected to conclude in June or thereafter, depending on the progress made throughout the trials.
The Role of CBDCs in Modern Finance
Central Bank Digital Currencies represent a digital counterpart to traditional fiat currencies, operating on blockchain technology. In South Korea, each CBDC token will correspond to KRW 1 (approximately Rs. 0.059). While CBDCs allow for expedited transactions and ensure permanent records through blockchain, they differ from cryptocurrencies in that they are issued and regulated by central banks. Nations including India, China, and Japan are also actively developing their own CBDC frameworks, seeking to improve financial transparency and diminish dependence on cash transactions.
Prior to this new trial, South Korea engaged in a CBDC pilot focused on wholesale transactions and introduced a blockchain-based digital voucher system between 2022 and 2023, expanding access to public welfare services via smartphones, as reported.
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