Central bank makes moves on CBDC and mentions RTGS
Bank of Korea Gov. Lee Ju-yeol on June 12 mentioned Central Bank Digital Currencies (CBDC) during a speech commemorating the bank’s 70th anniversary. He said that digital innovation which was once the realm of private research has now extended to central banks and that as a result, the bank will continue with the research on CBDC as planned. He also hinted on the possibility of connecting transactions system around the globe by implementing a Real-Time Gross Settlement (RTGS) system. It seems like the RTGS system was considered a supplementary method for CBDC, which is not so connectable when making payments across borders. “A notion that digital innovation could extend into payment and transaction areas of the central bank have been widespread lately,” Lee said. Lee mentioned Facebook’s cryptocurrency project called Libra as one example. He said that if Libra, utilizing the strong network of Facebook, could be implemented around the globe, the payment and transaction methods which are largely controlled by the central bank could be handed over to private players. “Central banks have the responsibility of promoting the efficiency and safety of transaction and payment systems,” Lee said. “Therefore, the bank should actively engage with the trend.” One of the options is to implement a CBDC. On June 12, Lee also hinted on the possibility of implementing RTGS. “Central banks in major countries have been setting up and managing RTGS-based fast transaction systems in order to minimize transaction risks. We should also take a note of that.” RTGS is a real-time transaction system, which contrasts the more widely known Deferred Net Settlement, where final transactions are made the day after an order is submitted. What’s important is that it hints on the possibility of connecting each county’s main transaction systems with each other. Since CBDC is operated by each country, it is not so effective a transaction method when payment has to be done between countries. In that sense, it is even worse of a transaction system than Facebook’s Libra or other type of cryptocurrency. In order to achieve such connectivity, central banks have to operate payment and transaction systems 24/7 for the full year. In case of an implementation of RTGS, the bank explained that there should also be a global standard for messaging. Last April, the Bank of Korea announced its CBDC pilot project, and according to this, the bank should be finished laying out the backbone of the CBDC by the end of July. And by August, the bank should complete research on the technology that could realize the CBDC in real world. Between September and December, the bank should analyze and consult on the operating process. And for the next full year, the bank should test out the issuance of CBDC. According to the bank’s long-term plan, dubbed BOK 2030, which was announced on June 9, the bank said it would preemptively go over technology and legal requirements for the CBDC’s implementation. However, with the bank saying that it will start preparing for the CBDC’s implementation “if necessary,” it seems that its actual issuance hasn’t been decided on yet.