The 2022 Payment and Settlement Systems Report by the South Korean central bank (BOK) presents an ambitious vision for the country’s financial technology. The report highlights successful oversight of the systems and emphasizes preparations for a future with central bank digital currency (CBDC) while also addressing stablecoin regulation.
According to the report, the BOK-Wire+ fast payment system will undergo an upgrade to real-time gross settlement (RTGS) and adopt the ISO 20022 standard, which is slated for implementation by 2028. Additionally, the bank intends to enhance its supervision of “Big Tech” payment services and bolster its capabilities to tackle “IT operational risk.”
The BOK has been actively preparing for the potential introduction of a CBDC, exploring the utilization of smart contracts, offline payments with near-field communications, and cross-border payments. To validate its functioning, the bank connected 14 banks and the Korea Financial Telecommunications and Clearings Institute (KFTCI) with its simulated CBDC system, which managed 2,000 transactions per second. Although this figure outperforms most domestic payment systems, further improvements are necessary to address capacity limitations.
In an effort to enhance the privacy of CBDC transactions, the BOK experimented with a zero-knowledge proof protocol. Although this allowed hiding wallet addresses and payment amounts, it significantly slowed down processing speed, and the security implications of a zkCBDC remain unexplored. The bank mentioned the possibility of considering homomorphic encryption as an alternative.
The BOK has committed to intensify CBDC research, including examining CBDC-based tokenized deposits and expanding the scope of research with banks and KFTCI. The primary focus of this research will be to identify a CBDC operating model that minimizes adverse impacts on financial system stability and the effectiveness of monetary policy.
Regarding crypto asset regulation, the report acknowledges “concrete” progress with the introduction of the Framework Act on Digital Assets Act, but the regulatory framework is still insufficient to allow payments in cryptocurrencies. The bank is also actively engaged in discussions about stablecoins.