South Korea’s top financial institution, the Bank of Korea, has released its analysis on central bank digital currencies (CBDC). The report indicates that central banks around the world are moving towards CBCDs due to advancements in blockchain technology.
Nothing should be considered investment or financial advice. Enjoy the ride.
First if you do not know what CBDCs are, then let’s review. CBDCs are Central Bank Digital Currencies. Not like Facebook’s Libra, but more closely related to China’s digital currency. The report we are referencing in this article is about a study the Bank of Korea did to gauge the interest in this field for central banks around the world. Let’s continue:
Blockchain Developments Driving CBDC Agenda
A report by the Bank of Korea published on Monday (May 8, 2020), revealed that central banks across the world are increasingly interested in developing their own respective CBDCs and a few banks have already made significant progress. The report titled “Overseas CBDC Progress Report” attributes the global attention on CBDCs to emerging developments in the blockchain industry.
According to the report, South Korea’s central bank conducted research and analysis on the CBDC projects of 14 central banks from a plethora of jurisdictions and found that decline in the use of fiat currency, and adoption of distributed ledger technology (DLT) in payment settlement processes are major factors driving the development of CBDCs.
An excerpt from the report reads:
“Most countries are investigating whether new future-oriented technologies can be applied beyond the centralized ledger management and account-based transactions that are currently applied to payment and settlement systems.”
Also, the report revealed that central banks are researching and developing two different types of CBDCs. Banks in France, Hong Kong, Thailand, Canada, Switzerland, and Singapore are focusing efforts on utilizing their state-backed digital currencies for managing large amounts. In other jurisdictions such as Norway, Sweden, China, and the U.K, the focus on is using CBDCs for micropayments.
While most of these central banks are still in the early stages of research and development, China and Sweden have both successfully completed proof-of-concept and have proceeded to real-world testing. Similar to China, the Bank of Korea has revealed micropayments as the main point of interest for developing its own CBDC. South Korea’s central bank is also considering leveraging DLT platforms from such as Coda and Hyperledger Fabric.
Importance of Micropayments
While these developments are great for blockchain and for the crypto eco-system, the use of micro payments is something that will have to be solved eventually. Central banks are trying to get ahead of this dilemma, but there are already a few solutions on the market today that could solve this issue as well. Most notably, IOTA has prized itself as the micro payment solution king and already begin partnering with hardware manufactures and the E.U for certain developments.
Likewise, projects like IOTA could be used in place of these centralized digital fiat solutions, or they could simply be bartered to pay for international micropayment solutions anywhere in the world.
Either way, the central bank solution of digital assets is a clear gateway for more digital currencies in the decentralized market to hit main stream. Maybe not all at once, but enabling people to convert their fiat into digital currencies will only promote the crypto economy in the end.