The Bank of Korea (BoK) has successfully completed the second phase of its CBDC pilot program. According to a local media outlet Yonhap News, the BoK used its digital South Korean won to facilitate cross-border remittances by linking different central bank digital currencies (CBDC) from other countries. The bank also tested using its digital won to trade Non-fungible tokens (NFT).
How CBDCs defeat the concept of Decentralization
The Bank of Korea has been developing and experimenting with several use cases for its digital currency in the global markets in a program that began over ten months ago. As part of its experiment, the Bank of Korea’s Governor Chang Yong Rhee noted that interoperability is key to the success of a CBDC. However, Rhee rightly noted one major concern as regards the use of CBDCs. According to him, Privacy, a major aspect of decentralization, is lost when using CBDCs.
Considering that international banks are regulated, CBDCs are unlikely to be a welcome development among crypto users who are particular about the “decentralization” of digital currencies. Banks will probably have the regulatory and compliance aspect in mind when transacting with CBDCs which could lead to them sacrificing the basic tenets of decentralization on which most digital assets rest on. In this case, Rhee stated that the bank made a decision to improve compliance at the expense of privacy.
South Korea’s willingness to explore Blockchain Technology
South Korea has shown its willingness to adopt the use of blockchain technology in its economy. The country recently announced that it was going to deploy a blockchain-based digital identity system by 2024 as it aims to stimulate its economy. You can read about it here. Therefore, it is no surprise that the Bank of Korea is also exploring the use of its digital currency for global remittances by partnering with other central banks worldwide. The BoK aims to advance its payment system and increase financial inclusion.
Furthermore, exploring the use of its CBDC to purchase NFTs is undoubtedly a good move. Combining CBDC with NFT trading will give the South Korean digital currency an edge over other CBDCs as this is a niche that other central banks are yet to explore. It would be great to see if the BoK could also explore other various use cases for NFTs in the financial world.
This was an article by Patrick Hagerty and placed on Solanews with the authors permission.