Suggestions of a state-backed cryptocurrency from South Korean Banks have been dashed, despite recent reports that the country might be one of the first to push forward on this new frontier.
Bank of Korea Squashes Rumors
On June 18, 2018, a Korea Times report confirms the central bank’s stance on digital assets. Bank of Korea (BoK) stated it opposes the idea of a Central Bank Digital Currency (CBDC), as issuing one would disrupt the “basic mechanics” of monetary policy generation, and the bank’s use of open market operations.
A previous report, issued on May 3, 2018, suggested that the country might be seriously pursuing the idea of a CBDC, which would fall in line with its relatively progressive stance on cryptocurrency regulation.
However, this news confirms that despite in-depth research, and genuine consideration of the possibility, the idea has been decided against.
Kwon Oh-ik, a researcher at the bank’s economic research institute, commented on the nature of cryptocurrency in the report, stating:
“We reviewed the possible feasibility of digital currencies as currency; however, our thoughts are that digital currencies have been exposed to various categories of risk associated with credit, liquidity and legal management.”
Naturally, the BoK’s focus is on protecting the best interests of consumers by seeking continued financial stability and preventing digital currencies from possibly being used in the criminal underworld.
As the report states, digital currency could prevent the central bank from maintaining control over the flow of money into the economy, and reduce the ability of the bank to regulate the stable financial conditions required to keep faith with lenders and consumers.
The central bank isn’t entirely negative on CBDCs, however, stating that although they have the potential to “revolutionize” the banking system, they would need to be rigorously tested through multiple trials before being approved.
The report also does not preclude the possibility of digital currencies being adopted in the future, but only suggests that if private sectors did afford the rights to issue currency recognized as legal tender, then the Bank of Korea would need to regulate them. “Technology improvements don’t mean private sectors will be allowed to have the rights for money issuance. If this happens, the BOK should regulate them but properly,” said Kwon.
The report represents the culmination of months worth of investigation by the BoK’s “digital currency taskforce,” which has been studying the possibility of issuing a CBDC and looking at how digital currencies could influence Korea’s traditional financial sector.
This matches with reports by other financial institutions globally, including the Bank of England, which has outright rejected the idea of a CBDC, and the central bank of Russia, which has expressed a critical view of sovereign-issued cryptocurrency on several occasions.