The Central Bank of South Korea (BOK) has published its 2022 Payment and Settlement Systems Report. The report states that monitoring of the system was successful, and that it prepares for a future with central bank digital currencies (CBDCs) and widely discussed stablecoin regulation.
The fast payment system BOK-Wire+ will be upgraded to Real-Time Gross Settlement (RTGS) and adopt the ISO 20022 standard, which is expected to come into effect in 2028, the report said. The bank will also increase oversight of “Big Tech” payment services and build its capabilities to respond to “IT operational risks.”
BOK continues preparations for the possible introduction of a CBDC, including research on the use of smart contracts, offline payments with near-field communication, and cross-border payments. The bank connected 14 banks and the Korea Financial Telecommunications and Clearings Institute (KFTCI) to its simulated CBDC system for the second half of the year to verify its operations.
“In line with these international trends, future Korean regulations for cryptocurrencies may also include a separate set of regulations for stable coins.
Stablecoin issuers and related service providers are subject to stricter rules regarding access rules, such as… pic.twitter.com/czbhJAvqaY
— Joshua Rosenberg (@_jrosberg) 19 July 2023
The system processed 2,000 transactions per second. This figure is higher than most domestic payment systems, but it has been slow to reach capacity, so further improvements are needed, the report said.
The bank attempted to use a zero-knowledge proof protocol to clear CBDC transactions to improve their privacy. This allowed it to hide transaction wallet addresses and payment amounts, but it significantly slowed processing speeds and the security implications of zkCBDC were not explored. It said it may also consider homomorphic encryption.
Related: CBDCs Should Protect Privacy, Not Be Surveillance Tools: Former CFTC Chair
BOK will promote CBDC research, with plans to look into CBDC-based token deposits and expand the scope of the research to include banks and KFTCI. It said:
“A key focus of BOK’s research will be to identify a CBDC business model with minimal negative impact on the stability of the financial system and the effectiveness of monetary policy.”
The report noted “concrete” progress towards regulation of crypto assets in the country with the introduction of the Framework Act on Digital Assets Act, but the regulatory framework to allow payments in cryptocurrencies is still incomplete. The bank is also in talks about a stablecoin, it has said repeatedly.
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