Korean Banks Start Research on Alternative for Stablecoins and CBDC

UTC by Bhushan Akolkar · 2 min read
Korean Banks Start Research on Alternative for Stablecoins and CBDC
Photo: Depositphotos

Private banks are exploring blockchain-based “certificate of deposit” tokens (CDs) that will replace deposits and customary notes. Besides, they can also easily integrate with CBDCs.

South Korea has always been at the forefront of introducing new advancements and developments in its financial and economic structures. Recently, several private banks in South Korea have come together to study the potential of tokenized deposit technology. This technology will basically serve as an alternative to both private stablecoins and central bank digital currencies (CBDCs). Local media publication Maeli Business News Korea reported that top private-sector banking institutions such as Hana Bank and Woori Bank have shown interest in the “certificate of deposit” tokens (CDs).

Alternative for Stablecoins and CBDC

CDs are nothing but tokenized bank deposits placed on a blockchain platform. Their aim is to replace deposits and customary notes without disrupting the existing banking system. Similar to other traditional banking services, CDs require identity verification of the same standards.

The report cites anonymous senior bankers who noted:

“CD tokens are perceived as stable from the banks’ perspective since they do not differ significantly from the current system.”

Hana Bank is looking into CD tokens, and Woori Bank’s research department has published a report on these tokens. From the bankers’ point of view, CDs appear to have few drawbacks. The interest in them arises from concerns raised among financial regulators due to stablecoin failures in 2022, as mentioned in the report.

CD Tokens Will Be Compatible with CBDCs

Currently, central banks across the world have been working on central bank digital currencies. Thus, it’s important that any developments that happen within the banking space, have a consideration for the CBDCs.

A significant advantage of CDs is their potential compatibility with CBDCs. Both Hana Bank and Woori Bank are part of a proof-of-concept test for a CBDC led by the Bank of Korea.

In July, the Bank of Korea shared its ongoing preparations for the possible introduction of a CBDC. They were exploring the use of smart contracts, offline payments using near-field communications, and cross-border payments.

The pilot program, involving 14 private banks, is already in operation. However, there are still some technical challenges. While the system managed to handle 2,000 transactions per second, which is higher than most domestic payment systems, it eventually slowed down as it approached its capacity. The Bank of Korea is now working on enhancing the technical capabilities of the project.

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