South Korea’s central bank, the Bank Of Korea, issued a warning over central bank digital currencies (CBDCs) a week after saying it would not introduce one itself. CBDCs represent the digital form a fiat currency of a particular nation and is issued and regulated by the competent monetary authority of the country.
The bank has now claimed in a report that a CBDC would result in mass withdrawals of funds from private institutions, squeezing liquidity and pushing up interest rates.
“The CBDC is a kind of a Bank of Korea issued bank account. People trust it more than one in a commercial bank,” said Kwon Oh-ik, one of the authors of the report. “Demand deposits are one of the biggest sources of loans by banks. When people pull out their money, banks raise rates, or lower the reserve ratio to secure more funds”.
BOK Will Not Be Offering CBDC Any Time Soon
A number of governments are currently examining the feasibility of using a CBDC, but the Bank of Korea decided against offering any CBDCs last month after conducting a study into the prospects. The bank concluded that there is no urgent need to pursue this in the near future. An unnamed official told the Korea Herald that the study was focussed on examining the possible legal and social effectiveness from a wide perspective. “We have no plans to issue any type of CBDC that is available for all people in the near future. We have to work further on benefits and costs of CBDC implementation first”.
A survey from the Switzerland-based Bank for International Settlements (BIS), an organization comprised of of 60 of the world’s central banks, found that seventy percent of central banks worldwide are currently conducting research into CBDC issuance.
Seoul has opted not to make significant changes to its stance on cryptocurrency as a whole in recent weeks. Last month, lawmakers ruled out a reversal over their ban on initial coin offerings in the country.