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South Korean Private Banks Explore Alternatives to CBDCs and Stablecoins

by BlockNews Team
July 28, 2023
in CRYPTO, FINANCE, MEDIA
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  • Private banks in South Korea are actively investigating tokenized deposit technology as a viable alternative to both private stablecoins and central bank digital currencies (CBDCs).
  • Top banks in the region have expressed strong interest in certificates of deposit (CDs), which are tokenized bank deposits stored on the blockchain.
  • Woori Bank’s research department, on the other hand, has already published a report on these tokens.

Several private banks in South Korea are actively investigating tokenized deposit technology as a viable alternative to private stablecoins and central bank digital currencies (CBDCs). Top banks in the region have expressed strong interest in certificates of deposit (CDs), which are tokenized bank deposits stored on the blockchain.

CDs are a modernized alternative to traditional paper-based notes and deposits that do not disrupt the existing banking system. Furthermore, using CDs entails adhering to the same stringent identity verification standards as any other traditional bank service.

According to reports, Hana Bank and Woori Bank, both private enterprises based in Seoul, are interested in investigating these certificates of deposit tokens.

Hana Bank has stated its intention to conduct CD token research. Woori Bank’s research department, on the other hand, has already published a report on these tokens.

Both Hana Bank and Woori Bank are exploring the concept of stablecoins, but from a modern standpoint, with the goal of addressing any potential disadvantages associated with traditional stablecoins. They see it as a promising alternative to both CBDCs and stablecoins and refer to it as the tokenized form of money.

CDs May be More Promising Than Stablecoins and CBDC

According to Woori Bank’s recently published report on deposit tokens and CBDCs, CD tokens are perceived as stable by bankers. According to a senior banker, the perceived stability of CD tokens stems from the fact that they do not deviate significantly from the current banking system.

Both Hana Bank and Woori Bank, previously mentioned banks, are actively participating in a Bank of Korea proof-of-concept test for a CBDC.

According to the report: As interest in the wholesale CBDC and deposit token model is high, domestic financial companies need to conduct various domestic and overseas demonstration experiments using deposit tokens like global banks.

According to the report, the growing interest in CD tokens is driven by concerns about the failures of stablecoins in 2022. These failures have alarmed financial regulators, prompting a search for more robust and dependable alternatives such as CD tokens.

Following the failure of Terra’s native asset UST, regulators began to scrutinize algorithmic stablecoins, leading investors to avoid such assets. Even asset-backed stablecoins like Tether have recently experienced de-pegging, raising concerns among market observers.

In light of these developments, CD tokens are seen as a more reliable alternative to stablecoins, according to the report.

Challenges in Bank of Korea’s CBDC Implementation

The Bank of Korea announced in July that it was actively preparing for the potential introduction of CBDC. As part of these efforts, the bank has looked into incorporating smart contracts, enabling offline payments via near-field communications, and facilitating cross-border payments.

The pilot program, which includes 14 private banks, is currently in operation. Nonetheless, there have been some technical challenges.

The system, which successfully handled 2,000 transactions per second, exceeding the capacity of most domestic payment systems, slowed as it approached its limits.

The Bank of Korea, on the other hand, is focusing on improving the project’s technical capabilities in order to ensure efficient functionality for future implementations.

Tags: CBDCSouth KoreaStablecoins
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