South Korean Private Banks Explore Alternatives To CBDCs

In South Korea, numerous private banks are actively researching tokenized deposit technology as a viable alternative to both private stablecoins and central bank digital currencies (CBDCs). Top banks in the region have shown considerable interest in certificates of deposit (CDs)- which refer to tokenized bank deposits that are placed on the blockchain.

CDs serve as a modernized alternative to conventional paper-based notes and deposits without causing any disruptions to the existing banking system. Additionally, utilizing CDs involves adhering to the same rigorous identity verification standards as any other traditional bank service.

According to reports, Hana Bank and Woori Bank, both private enterprises headquartered in Seoul, have demonstrated a keen interest in exploring these certificates of deposit tokens.

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Hana Bank has expressed its intention to conduct research on CD tokens. On the other hand, Woori Bank’s research department has already released a report focusing on these tokens.

Both Hana Bank and Woori Bank are delving into the concept of stablecoins, however, they are approaching it with a modern perspective, aiming to address any potential disadvantages associated with traditional stablecoins. Referred to as the tokenized form of money, they view it as a promising alternative to both CBDCs and stablecoins.

CDs Might Be More Promising Compared To Stablecoins And CBDC

In Woori Bank’s recently published report focusing on deposit tokens and CBDCs, CD tokens were perceived as stable from the bankers’ perspective. According to a senior banker, the reason behind the perceived stability of CD tokens is that they do not deviate significantly from the current banking system.

Notably, both Hana Bank and Woori Bank, the banks mentioned earlier, are actively participating in a proof-of-concept test for a CBDC conducted by the Bank of Korea.

The report mentioned:

As interest in the wholesale CBDC and deposit token model is high, domestic financial companies need to conduct various domestic and overseas demonstration experiments using deposit tokens like global banks.

The report has further highlighted that the growing interest in CD tokens is driven by the apprehension arising from the stablecoin failures observed in 2022. These failures have raised concerns among financial regulators, prompting a search for more robust and reliable alternatives like CD tokens.

Following the collapse of Terra’s native asset UST, algorithmic stablecoins came under scrutiny from regulators, leading investors to turn away from such assets. Even asset-backed stablecoins like Tether experienced de-pegging instances recently, raising skepticism among market observers.

In light of these developments, CD tokens are being viewed as a more reliable alternative compared to stablecoins, as mentioned in the report.

Hiccups In Bank Of Korea’s CBDC Implementation

In July, the Bank of Korea announced its active preparations for a potential CBDC introduction. As part of these efforts, the bank has been exploring various aspects, such as incorporating smart contracts, enabling offline payments using near-field communications, and facilitating cross-border payments.

The pilot program involving 14 private banks is currently operational. But despite its progress, there have been some technical challenges.

The system, which successfully handled 2,000 transactions per second, surpassing the capacity of most domestic payment systems, has experienced a slowdown when nearing its limits.

However, the Bank of Korea is focusing on enhancing the project’s technical capabilities to ensure efficient functionality for future implementations.

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