Bank of Korea eyes wholesale CBDC, tokenized deposits with LG CNS

The Bank of Korea (BOK) has partnered with LG CNS to develop a wholesale central bank digital currency (CBDC) system and explore tokenized deposits. LG CNS will utilize its expertise in blockchain technology to create a system for South Koreans to tokenize their deposits. The contract between LG CNS and the BOK is set to be valid until March 2025 and will be implemented in phases. The BOK has allocated a budget of KRW 9.68 billion ($7.45 million) for LG CNS’s system, which will be instrumental in conducting wholesale CBDC trials alongside other financial regulators. A tokenized deposit trial is planned for the last quarter of 2024, with 100,000 residents expected to participate. Tokenized deposits offer numerous advantages, including fractional ownership, programmability, financial inclusion, and increased liquidity. The upcoming system by LG CNS will allow the BOK to explore various future use cases for tokenized deposits, such as cross-border payments, DeFi integration, and the creation of wealth management products by financial institutions. The BOK is taking a cautious approach to CBDC rollout, collaborating with global financial agencies and local stakeholders to develop an appropriate strategy. The central bank has also partnered with Banca d’Italia to establish technical standards for CBDCs. However, there are speculations that the BOK may abandon its plans for a retail CBDC due to underwhelming results from last year’s trials and the advanced local payments ecosystem. In preparation for further CBDC studies, the BOK is strengthening its workforce and engaging South Korean commercial banks as partners. The initial pilot for CBDC distribution will take place in cities like Jeju, Incheon, and Busan, with Jeju expected to lead the way in public distribution of the CBDC. The studies will likely be limited to specific geographic regions, although there could be provisions for tourists to participate.