South Korea’s KEB Hana Bank is partnering with the Central Bank of Korea (BOK) to collaborate on the BOK’s pilot project for Central Bank Digital Currency (CBDC) and explore stablecoin alternatives, such as tokenized deposits.
Central banks are looking for stable alternatives to popular stablecoins to avoid price volatility in their CBDC projects. They aim to improve the design of conventional stablecoins and explore the concept of “private tokenized monies that circulate as bearer instruments.”
Tokenized Deposits Offer Potential Advantages
Tokenized deposits, a type of blockchain-powered digital currency, are being considered as an alternative by central banks. These deposits settle in central bank money, avoiding issues of exchange value departures and offering expanded functionality through programmable ledgers.
South Korea’s Hana Bank, actively participating in the BOK’s CBDC Proof of Concept project, is conducting internal research on tokenized deposits. Commercial banks in South Korea are also eager to carve out a niche for themselves in the CBDC space to avoid being excluded from future developments. Hana Bank has been exploring blockchain technology for approximately five years, investing in blockchain-powered real estate and conducting research in the crypto sector. The BOK is collaborating with several commercial banking partners to develop the digital KRW project.
South Korean Banks Show Interest in Tokenized Deposits
South Korea’s banking sector is showing significant interest in ‘tokenized deposits,’ a trending topic in the financial world. Tokenized deposits are gaining attention after the Bank for International Settlements (BIS) published a paper in April, co-authored by Hyun Song Shin, a former economic advisor to the South Korean presidency.
Woori Bank’s Woori Financial Management Research Institute, a competitor of Hana Bank, has recently published a report on this idea. Domestic commercial banks have taken notice of tokenized deposits, especially when the Governor of the Bank of Korea (BOK), Lee Chang-Yong, emphasized their importance at a BIS event in March. Hana Bank’s Management Research Institute forecasts that the domestic security token market will reach approximately $27 billion next year.
Challenges in Implementing the Bank of Korea’s CBDC
In July, the Bank of Korea announced its active preparations for potentially introducing a Central Bank Digital Currency (CBDC). The bank has been exploring different 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 underway, showing progress. However, there have been some technical challenges. While the system managed 2,000 transactions per second, surpassing the capacity of most domestic payment systems, it experienced slowdowns when nearing its limits. The Bank of Korea is actively improving the project’s technical capabilities to ensure smooth functionality for future implementations
Final Thought
South Korea’s Hana Bank is actively joining forces with the Central Bank of Korea (BOK) to explore the potential of Central Bank Digital Currency (CBDC) and seek stable alternatives like tokenized deposits. The interest in tokenized deposits is gaining momentum in the country’s banking sector, driven by the advantages they offer, including increased stability and expanded functionality through programmable ledgers. As the BOK continues its efforts to develop the CBDC project, it faces some technical challenges that require further enhancements to ensure smooth implementation in the future.