Bank of Korea concludes first phase of digital currency trials

The Bank of Korea (BOK) presented the initial results of its central bank digital currency pilot, which tested some of the basic functions such as distribution and issuance.

The South Korean regulator said the first phase was successfully completed in December 2021, four months after it launched a process to research the practicalities of launching its CBDC in a test environment. To that end, it has allocated 4.9 billion won ($4.4 million) and picked the blockchain arm of internet giant Kakao, Ground X, as the tech supplier for its government-controlled cryptocurrency.

While the pilot is not a commitment to issue a central bank digital currency, a decision to do so in August was the first exploratory step in Asia’s fourth largest economy. At the time, BOK cited the desire to move the country closer to becoming a cashless society with significant benefits for both businesses and consumers.

The second phase is currently underway, reported YNA news. It aims to simulate core aspects of a potential CBDC system on a commercial scale, including cross-border remittance, retail payments and offline payments.

“We will confirm the possibility of operating various functions, such as offline settlements, and the application of new technologies, such as one intended to strengthen privacy protection during the second phase of the test,” the BOK said in a press release.

The central banks of China, the UK, Sweden and almost all major economies are investigating or developing a CBDC to modernise their financial systems. China’s e-CNY is the closest to fruition.

The news comes on the heels of delaying the planned taxation on digital assets gains by the South Korean legislative body.

A 20% tax on gains made through cryptocurrency trading  – if the total income is more than 2.5 million Korean won (about $2,000) – was originally set to come into effect this month. If the amendment passes a parliamentary vote, the new taxation rules would come into play on January 1, 2023.

Historically, South Korea is one of the hottest investing and trading markets for cryptocurrencies. However, authorities have been hesitant to regulate the virtual asset class, due to their belief that cryptocurrency regulation could lend legitimacy to the sector.

Separately, nearly 30 cryptocurrency exchanges in South Korea filed with the nation’s regulators to continue their businesses in the country. Out of this figure, the local industry media identified the four biggest crypto exchanges – UPbit, Bithumb, Coinone and Korbit.