Category Archives: Bank Of Korea

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Bank of Korea: CBDC Could Threaten Commercial Bank Stability

CBDC Could Threaten Financial Stability of Commercial Banks, Says Bank of Korea

The Bank of Korea (BOK) has said that the introduction of a state-owned and issued digital currency in the form of central bank digital currency (CBDC) in South Korea could possibly zero-out commercial banks, reports Yonhap News Agency.

According to the source, the BOK published a report expressing concerns with low deposits demands into commercial banks that may result from the implementation of a state-backed CBDC into the financial system.

Kwon Oh-ik, one of the co-authors of the report, wrote: “The CBDC is a kind of a BOK-issued bank account. People trust it more than one in a commercial bank”. This implied that as customers are likely to trust the blockchain-based currency type backed by the BOK as opposed to the legacy form of money transfer and handling, this might lead to low liquidity in such commercial banks as customers withdraw their money. This would invariably shoot up interest rates.

Commercial banks are largely dependent on the loan infrastructure and if deposit services reduce, making it hard for the banks to have access to liquid cash for loan maintenance, then interest rates will then go up. Invariably, that may reduce patronage and consequently reduce the businesses of such banks.

Banks around the world have been discussing different application models for blockchain and cryptocurrencies. One such possibility involves CBDC, and talks about facilitating cross-border payment infrastructures. Banks have identified CBDCs as a government type of cryptocurrency which will constitute the exactness of a fiat currency.

At last, one thing some central banks around the world and crypto-enthusiasts could agree on is that a digital asset built on the blockchain could represent a store of value as well as a medium of exchange, and possibly capable of replacing the legacy fiat currency formats.

A CBDC could play a significant role in mass adoption of cryptocurrency. However, as exciting as that may sound for Seoul-based crypto enthusiasts, the South Korean central bank has a differing opinion.

The bank did say last week that it is not rushing into issuing a CBDC even though many financial institutions around the globe are more welcoming to the prospects of the financial instrument. The report published by the bank further reiterates its stance on the subject of CBDC.

 

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Bank of Korea Says No Urgent Need for CBDC

Bank of Korea Says No Urgent Need for CBDC

South Korean news agency The Korean Herald reported today that the nation’s central bank has said it has no plans of issuing a digital currency in the near future.

Cryptocurrency has taken center stage in many financial institutions around the globe and has found its way into major economic discussions in recent times, this includes the World Economic Forum held in Davos. However, South Korea’s major financial institution has for now chosen to distance itself from the whole shift to digital currencies.

After research conducted by the Bank of Korea on central bank digital currency (CBDC) regarding the possibility of issuing a cryptocurrency that is backed by the central bank or the government, it concluded that there is no urgent need for such implementation. The report was aimed at gathering legal and social data for the effective implementation of CBDC.

Citing an unnamed bank official, the bank said: “We have no plans to issue any type of CBDC that is available for all people in the near future.” It appears that while plans to issue a CBDC is on hold, the bank will continue to research the space and gather more information such as cost implications and benefits. The bank official further said: “We have to work further on the benefits and costs of CBDC implementation first.”

A number of banks have been considering a CBDC for a while now. Most central banks have come up with reasons why they wouldn’t support such innovation claiming the tech has yet to live up to the hype, however, a few have gone ahead to issue theirs.

Mixed feelings surrounding the concept of a national cryptocurrency have been in play for a while now. The Bank of Thailand wants to use a CBDC for internal bank transactions. Speculations surrounding Iran’s national currency as primarily to evade sanctions from the US. Last month, the US Federal Reserve was of the opinion that implementing a CBDC would be out of naivety. Meanwhile, the Bank of England has over time warmed up to the idea of a CBDC after claiming cryptocurrency had failed as both a store of value and a medium of exchange.

Regardless, one thing is certain, banks are settling for the idea of replacing current banking systems with distributed ledger technology, especially to reduce human error and improve transparency. The possibility of a digital currency from there shouldn’t be quickly dismissed.

 

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South Korea Still Reticent on National Crypto After Task Force Report

South Korea’s central bank has announced says it has no plans to launch its own central bank digital currency (CBDC), reports Coindesk.

This announcement came after another last month which suggested that South Korea was, in fact, looking at the feasibility of such a move. It had been suggested in May that a task force had been set up in January to examine if a CBDC would adversely affect South Korea’s financial system.

The original statement said that the Bank of Korea (BoK) was looking at similar movements globally by central bank counterparts, this after it had confirmed it was considering using blockchain technology for an ambitious “cash-free” society pilot.

The latest statement claims that it does not plan to launch its own digital currency over fears it could destabilize the economy, with the BoK going as far as to say it could pose a “moral hazard” due to the instability it would cause to financial markets. According to the Korea Times, Bok also issued a statement suggesting that digital currencies do not perform as fiat money.

The latest report goes on to examine alleged elements of risk associated with a CBDC. A BoK Economist said that “our thoughts are that digital currencies have been exposed to various categories of risk associated with credit, liquidity and legal management”, adding that traditional and digital currency operating side by side could create “social costs and undermine social welfare”.

The central bank has further suggested that there is hope for CBDC, but that they would need far more rigorous testing despite their obvious potential to impact on the current banking system.

Press source Yonhap mentions that BoK wants closer scrutiny and regulation on private crypto users regarding the actual size of their holdings so as not “to inflate their collateral and produce more e-money”, adding that a central bank should take full charge of the issue of banknotes and electronic money.

 

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Bank of Korea Considers Crypto and Blockchain as Part of “Cashless Society”

South Korea is making huge waves in the cryptocurrency and blockchain space yet again, having announced recently that its central bank, the Bank of Korea (BOK), is considering cryptocurrency and blockchain applications for a “cashless society” project.

As reported by local news source TokenPost on 1 May, the BOK had announced the official launch of its cash-free society project in its 2017 Payment Report; the report gives mention of the BOK working with overseas banking institutes to fully explore the viability of blockchain technology and password security to payment systems. It has also created a research organization to analyse cryptocurrency and the potential effect of virtual money on the financial system.

Cashless society

In 2016, the Korea Times reported that the BOK was planning to make the country a “cashless society” by 2020; a central bank survey found that South Koreans carry on average 1.91 credit cards, 2.03 mobile cards, 1.26 check or debit cards.

The survey also highlighted the decline of cash carriers amongst the population and that the central bank issued 12.3% fewer 10,000 Korean won (KRW) banknotes from 2015 to 2016 with smaller denominations also showing dips.

South Korea began officially piloting the project in April 2017 with a “coinless society trial” where customers would deposit small amounts of change from cash transactions onto a prepaid platform such as mobile cards and then use them at various retailers.

One of the main purposes of the project is to increase customer convenience and reduce the costs of physical money production, which in 2016 had cost USD 47 million.

Furthermore, the government plans to utilize the initiative to “open the underground economy” which is largely cash-based. Kwak Hyun-soo, an analyst at Shinhan Investment Corp, said:

“It can open the underground economy, and thus enhance equivalence in taxation. The shoe box full of KRW 50,000 banknotes that you see in movies will disappear in reality [with the advancement of a cashless society].”

A notable advancement was made by a big business in South Korea with the announcement of Starbucks Coffee Korea Co. beginning to trial cashless stores at three of its outlets.

Visions of a crypto-country

In the wake of multiple controversies in South Korea, including ICO bans and crackdowns on exchanges, the world media was convinced that the third largest fiat-to-Bitcoin market in the world was headed into darker days and as a consequence, innovations on cryptocurrencies and blockchain technologies would be stifled if not entirely dismissed.

However, BitcoinNews has reported numerous occasions of South Korea being one of the most forward-thinking nations when it comes to the mass-scale adoption of the technology. Taxation laws, higher qualities of service from leading exchanges and Seoul’s very own cryptocurrency are amongst many of the stories emerging that now seem to perfectly fit in line with goals of the “cashless society” project.

 

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