Developed Countries Have Little Need for CBDCs, Says Bank of Korea Official

The Bank of Korea has again poured cold water on the idea of adopting a central bank digital currency (CBDC), according to remarks made by an official of the central bank.

Based on a CoinDesk Korea report on Wednesday and notes from a conference on payments held on Tuesday in Seoul, Hong Kyung-sik, director of financial settlement at the central bank, argued that in Korea, as in most advanced economies, there is very little need for a CBDC.

“In Korea, we already have advanced payment and settlement infrastructure. In addition, the degree of openness is also internationally high,” Hong said, according to conference notes published on the central bank’s website.

Money can be moved quickly, cheaply and safely in the country utilizing app-based solutions and by bank remittance, and purchases can be settled efficiently with credit cards, Hong added. Open banking is also being developed in Korea, with APIs allowing for seamless connections to and between financial institutions.

“The possibility that CBDC issuance will soon become a reality in major countries is still small,” Hong noted.

That said, the central bank official admitted a CBDC might make some sense in developed countries for achieving a few very specific goals, such as the systems being built out in Scandinavia to avoid monopolization and to maintain the resilience of the relevant infrastructure.

On the other hand, developing countries with poor infrastructure might find a CBDC useful to improve inclusion and lower costs associated with the handling of cash, he said. For China, a central bank digital currency could support monetary policy and help promote the internationalization of the renminbi, Hong added.

He said that the central bank will continue to look at blockchain-related technologies and monitor CBDC developments globally but added the institution would be prudent in adopting new solutions.

“The Bank of Korea should promote and support innovation in payment and settlement. Every effort should be made to achieve a balance between efficiency and safety,” he concluded.

The Bank of Korea has long been skeptical of CBDCs and in the past has expressed concern about the development of these currencies. In a paper published by the bank in February, it was suggested that a CBDC could crowd out commercial banks and drain them of their funds, destabilizing the banking system.

Bank of Korea image via Shutterstock