The Governor of Korea’s Central Bank Has Urged CBDC Development to Compete With Stablecoins

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Last Updated on December 17, 2023 by Bitfinsider

According to local media, Bank of Korea Governor Chang-yong Rhee warned that the growth of stablecoins might pose a substantial threat to the traditional duties of central bank money and undermine the efficiency of monetary policy.

Rhee made the remarks on December 15 at a digital money conference in Seoul. To mitigate this imminent threat, he stressed that central banks must step up their efforts to produce both a retail and wholesale version of central bank digital currency.

The rise of stablecoins and the existential threat they pose to central bank money is the first main source of concern, while the lack of an appropriate regulatory framework for non-depository or non-financial institutions operating in the digital financial system is the second.

Rhee underlined that, despite their name, stablecoins frequently lack intrinsic stability and may undermine the role of central bank-issued money. As a result, traditional monetary policies may become less successful.

The potential involvement of global networks such as Visa or Mastercard, particularly in nations such as South Korea, complicates matters even more. This could complicate regulating capital flows and maintaining monetary policy independence, according to Rhee.

To solve these issues, Governor Rhee proposed that central banks consider establishing central bank digital currencies (CBDCs) in both retail and wholesale versions.

He emphasized South Korea’s initiatives in this area, such as a pilot project for a retail CBDC system that uses distributed ledger technology (DLT). The programmability of such currencies, which enables sophisticated, conditional transactions via smart contracts, was cited as a significant advantage.

Furthermore, the BOK is launching a second CBDC pilot project in partnership with financial authorities and the Bank for International Settlements to investigate wholesale CBDCs.

The idea aims to combine a wholesale CBDC with tokenized bank deposits. It intends to investigate the issuing of tokenized e-money by banks and non-bank financial institutions, which would be completely backed by wholesale CBDCs.

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