The South Korean central bank (BOK) has published its 2022 report on payment and settlement systems. The system monitoring was successfully completed, the report saidand he prepares for a future with central bank digital currency (CBDC) and extensively discusses the regulation of stablecoins.
The BOK-Wire+ fast payment system will be upgraded to real-time gross settlement (RTGS) and has passed ISO 20022 standard, which is expected to be implemented in 2028, according to the report. The bank will also strengthen oversight of “Big Tech” payment services and build capacity to respond to “IT operational risk”.
The BOK continued its preparations for the potential introduction of a CBDC, which included investigating the use of smart contracts, offline payments with near-field communications, and cross-border payments. The bank connected 14 banks and the Korea Financial Telecommunications and Clearings Institute (KFTCI) to its simulated CBDC system during the second half of the year to verify its operation.
“In line with these international trends, future Korean regulations for crypto-assets may also include a separate set of rules for stablecoins.
Stricter rules must be applied to stablecoin issuers and related service providers regarding entry regulations, such as… pic.twitter.com/czbhJAvqaY
—Joshua Rosenberg (@_jrosenberg) July 19, 2023
The system was processing 2,000 transactions per second. This figure is higher than most national payment systems, the report notes, but it has slowed as it reached capacity, so further improvements are needed.
The bank tried to use a zero-knowledge proof protocol to erase CBDC transactions to improve their privacy. This allowed it to hide the wallet addresses and payment amount of the transaction, but it significantly slowed processing speed and the security implications of a zkCBDC have not been studied. He said he could also consider homomorphic encryption.
Related: CBDCs Should Protect Privacy, Not Be a Surveillance Tool: Former CFTC Chairman
The BOK will intensify research on CBDCs, with plans to examine CBDC-based token deposits and expand the scope of research with banks and KFTCI. It said:
“One of the main objectives of the BOK’s research will be to identify a model for the operation of CBDCs with minimal negative impacts on the stability of the financial system and on the effectiveness of monetary policy.”
The report notes “concrete” progress towards the regulation of crypto assets in the country with the introduction of the Digital Assets Act Framework Law, but the regulatory framework is still too incomplete to allow payments in cryptocurrencies. The bank is also engaged in stablecoin talks, it has repeatedly said.
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