State-Issued Cryptocurrency No Go for Bank of Korea

The central bank of South Korea prefers to stay away from the uncharted territory of sovereign digital currency to avoid potential risks to monetary policy and financial stability.

The Bank of Korea (BOK) has dismissed the idea of issuing central bank digital currency (CBDC) as it may lead to unforeseen consequences, potentially influencing both monetary policy implementation and the bank's open market operations, the Korea Times reports.

"The BOK is worrying over concerns that such a sudden launch of the CBDC will cost society a lot and cause a moral hazard. Also, issuing CBDC could destabilize the market order because digital currencies don't currently constitute money. It's desirable that the BOK is the only entity to entirely control issuing money because the introduction of a CBDC will raise fundamental questions that go far beyond monetary policy implementation and transmission," the BOK said in a report on Monday.

The central bank confirmed it had considered the feasibility of digital money as currency but concluded after in-depth research that cryptocurrency fails to perform as a medium of exchange and poses risks to credit, liquidity, and legal management.

Korea’s central bank wants to retain control over money flows in the economy and regulate the financial conditions for lenders and consumers, which is why it does not plan to let the private sector issue currencies any time soon.

"Technology improvements don't mean private sectors will be allowed to have the rights for money issuance. If this happens, the BOK should regulate them but properly," Kwon Oh-ik, a researcher at the bank's economic policy bureau, wrote in the report.

In sync with the world

BOK’s conclusions align with the position of some other central bankers, who expressed their concerns about CBDC. The central bank of Russia has expressed a critical view of sovereign-issued cryptocurrency on numeral occasions, while the head of the Bank of England has said that cryptocurrencies are no good when it comes to payments and other functions of money.

A working paper published by the British central bank in May suggests that a CBDC would change the role of the banking system in the economy and may exacerbate potential bank run situations.