South Korea’s central wants to carry out a testnet for its central bank digital currency (CBDC). According to the announcement, the main reason for the test is to test whether CBDC can be used for settlement and remittance for goods and services.
The South Korean government has been planning on the development of a CBDC since last year. The idea is to provide a better alternative to cryptocurrencies, which are highly volatile and considered too risky for investors.
CBDC to be regulated by the central bank
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A CBDC is likely more stable than cryptocurrencies because they are the same as a country’s fiat currencies but in digital form.
It will be regulated and centralized by the monetary authority of the country, unlike decentralized cryptocurrencies.
South Korea’s central bank stated that it will be in charge of the issuance and redemption of digital tokens. But fintech companies, banks, and some other private companies will be responsible for distributing them to the end-users.
The plan is to select the service companies via an open bid, with the testing of CBDC set to commence this year in a virtual simulated environment.
However, throughout the year, the central bank will carry out the phase 1 testing.
No specific time set for CBDC launch
The phase 2 testing will continue in 2021 and run until the end of June. The second stage will involve the testing of large-scale applications of CBDCs. These include purchasing of digital The central bank has assets or transfers between two countries.
The Head of Digital Currency Research team at the apex bank, Yun Sung-guan, commented about the test phase. He added that the central bank has not proposed any date for the use of CBDC after testing. Sung said the testing doesn’t necessarily mean CBDC will be deployed in the country shortly.