Koreas Tokenized Deposit, CBDC tests with 100,000 people in April -Ledger knowledge

In 2023, the Bank of Korea announced plans for an attempt that would combine tokenized deposits and wholesale Digital Bank Currency (WCBDC). The central bank recently confirmed the seven banks that will participate. Business Korea has now reported that the study with 100,000 consumers will take three months from the beginning of April.

From the consumer perspective, you do not interact directly with the CBDC. Instead, use a tokenized down payment, a blockchain money version issued by your bank. A bank app is used in the payments to scan QR codes at the cash register.

The participants of online retailers include Hyundai Home Shopping and Ddangyo, while mainstream retailers 7-Elves, Hanaro Mart, Kyobo Bookstore, Ediya Coffee and Silla University are.

For the experiment, consumers can keep up to 1 million won (693 US dollars) with total transactions to a limited extent over a period of time.

The banks approved for participation are Kookmin, Shinhan, Woori, Hana, Industrial Bank of Korea, Nonghyup and Busan.

Previously, the central bank said that there would be two legal proceedings. In the first stage, all banks do the same more or less. In a subsequent round, each bank can have more freedom with programming. The Korea Financial Telecommunications and Clearings Institute checks and organizes the intelligent contracts. In addition, the central bank signed an agreement with the Ministry of Science and ICT (MSIT) and the Financial Services Commission (FSC) for the usability tests.

The role of wholesale CBDC

The purpose of the wholesale CBDC is to enable Interbank settlement on the blockchain. The Bank of Korea previously said that it would use the specially bound money model that Singapore helped to develop. This includes a kind of voucher system that adds the payment token conditions, so that tokens may only be used in certain places or for certain purposes.

Like Singapore, Korea plans to beat various modes of the Interbank settlement.

We speculate here, but a potential model includes miles and burn. Suppose a Kookmin Bank customer uses a token to pay a retailer who has an account with Nonghyup Bank. One possibility that can work are the Kookmin bank token that are burned and new tokens in Nonghyup Bank are shaped for the benefit of the dealer.

This meets the needs of consumers and the dealer, but Kookmin Bank now owes the Nonghyup Bank money that can be included by Kookmin that the WCBDC transferred to Nonghyup. We do not know whether this is the specific design, but it is a generic way of how to be tokenized. **

The central bank also plans to negotiate an e-money model. In this case, Kookmin Bank would wrap a few WCBDC to make a Kookmin token. When the consumer pays the dealer, the Nonghyup Bank unpacks the token and now has WCBDC as a payment. This is easier and more elegant from a payment perspective, but does not support fractional reserve banking.

In addition, the central bank can try a third type. This could contain the use of the tokenized deposit in E-money style on a third-party platform, e.g. B. a DLT-based securities trading platform.

** This generic design has some disadvantages. For example, compared to stable coins, coin and combustion for each transaction seems to be more than suboptimal. There are alternatives except for the e-money that deals with the disadvantages of the mileage/burning or the transfer of tokens between banks. These are examined in the following report.

Ledger Insights Research has published a report on the stable coins issued by banks and tokenized deposits with more than 70 projects. Find out more here.