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| Bank of Korea Governor Lee Ju-yeol responds to a question after the country's central bank left its benchmark rate unchanged at 1.5 percent in April, in this file photo. Korea Times file |
By Kim Yoo-chul
The Bank of Korea (BOK) plans to announce its recommendations regarding cryptocurrencies including a plan to possibly issue a central bank digital currency (CBDC).
"A taskforce has been studying the possibility of issuing a CBDC and how digital currencies will influence the country's overall financial sector since January. We will announce updates on this issue by the end of June," the bank said in a statement Wednesday.
The statement noted that the CBDC study is still in its "early stages" because of complex elements in its implications.
The BOK said it was premature to talk on whether it would issue the CBDC, but the central bank will keep an eye on any global developments.
There are worries that a digital currency could destabilize traditional lenders if offered suddenly and widely.
Economists say general purpose CBDCs could revolutionize the way money is provided and the role of central banks in the financial system. However, they added that these are "uncharted waters," and trial tests are needed before their introduction.
Digital currencies are a revolutionary tool that central banks around the world considering, although they are currently deemed "too risky" to be used as legal tender at the moment. CBDCs could fuel faster "bank runs" during periods of financial instability.
The Bank for International Settlements (BIS) recently said CBDCs could "one day" be issued by policymakers to settle payments among financial institutions.
It remains to be seen whether the BOK's confirmed interest in "digital currencies" will help the local cryptocurrency market recover from earlier losses caused by the government's tough regulations on crypto-trading.
"The critical factor that magnifies the way a market moves is sentiment. This is most important as a market could be pushed ahead by sentiment. The BOK's interest in digital currencies isn't that new, and is good in terms of market sentiment," said a senior economist at the Samsung Economic Research Institute.
Only customers who pass identification checking procedures are allowed to buy and sell cryptocurrencies on platforms operated by major local banks. But financial regulators were given a "free pass" to check and monitor transactions by investors in order to prevent illegal activity. The number of daily transactions in Korea, once regarded as the most active market in cryptocurrency trading, plummeted after the government applied these rules.
Minister of Government Policy Coordination Hong Nam-ki, said the government has yet to decide how to regulate cryptocurrency trading as relevant agencies have failed to reach consensus.
He added that a decision on whether to ban trading in exchanges or make it mainstream remains "debatable."
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