South Korea has revealed its plans to launch a central bank digital currency (CBDC) pilot involving 100,000 citizens in the fourth quarter of 2024. The initiative, a collaboration between the Bank of Korea (BOK), the Financial Services Commission (FSC), and the Financial Supervisory Service (FSS), aims to address challenges in existing government-issued grant systems, particularly related to high transaction fees, slow settlement processes, and fraud concerns.

According to coindesk.com, approximately 0.2% of the country's population, or 100,000 individuals, will participate in the pilot programme, utilising tokens issued by commercial banks in the form of a CBDC for the purchase of goods. Notably, the use of these tokens will be confined to the acquisition of goods, with restrictions on other applications such as remittances. Reports from July suggest potential locations for the pilot program could include Jeju, Busan, or Incheon.

The BOK perceives the CBDC as a potential solution to the identified issues in the existing grant systems, addressing transactional inefficiencies and security concerns. This move aligns with the global trend among central banks in developed economies exploring CBDC development as a response to the decreasing use of cash and the growing preference for digital payment methods. South Korea has positioned itself as one of the early adopters of central bank digital currencies, having already completed testing functions such as CBDC issuance and distribution in a simulated environment by December 2021.

Countries leading the charge on CBDC development In May 2023, Thibault Pelé from Worldline talked about CBDCs and their primary benefits and challenges with The Paypers. During the discussion, he also talked about the achievements of countries such as China and Nigeria, both of which are actively engaged in CBDC development. In China, the deployment of the E-CNY Wallet has gained significant traction, with over 261 million users and a cumulative transaction volume surpassing USD 15 billion.

The initial rollout strategically targeted key cities like Shanghai and Beijing, gradually expanding to encompass 23 cities where E-CNY is accepted as a payment method. However, in Nigeria, the adoption of e-Naira has faced challenges primarily stemming from low levels of trust in the government. Despite a user base exceeding 800,000 with e-Naira wallets, transaction volumes remained subdued due to a lack of confidence in the system.

Thibault emphasised that adoption is a critical challenge faced by all countries rolling out CBDCs, which is why local governments relied on incentivisation, education, or restraint, to promote the adoption of their local digital currency. .