The Bank of Korea (BOK) is to review additional central bank digital currency (CBDC) design options after its 10-month experiment to test a retail CDBC based on distributed ledger technology (DLT) revealed “limitations of scalability” such as slow processing times during periods of high transaction volume when compared with a more conventional centralised ledger database, the bank says.
Reporting on the lessons learned from BOK’s first CBDC test, bank governor Chang Yong Rhee told an IMF webinar that the bank will now “step up its CBDC-related efforts going forward”, launch “a follow-up experiment linking our test system to those of commercial banks” as part of a “careful assessment” of design and operational options, and participate in a Bank for International Settlements (BIS) project to improve cross-border payments.
“Our test system was designed based on DLT, which is decentralized and has been referred to as a revolutionary innovation,” Rhee said.
“However, immediately the trade-off between innovation and stability kicks in. During the experiment we found that DLT still has not overcome the limitations of scalability to support a retail CBDC in the Korean economy.
“So, if the primary use case of a CBDC is for day-to-day payments to online and offline merchants, without further technical advancements of DLT, we may be better to use the standard centralized ledger database.”
Rhee also identified issues relating to privacy, private-public partnerships in the finance and payments sector, the development of a wholesale CBDC in combination with a retail digital currency, and “potential risks caused by a CBDC such as disintermediation and digital runs” as areas that BOK will explore further in its ongoing CBDC testing programme.
BOK announced in October 2020 that it was planning to start testing a prototype CBDC.