Bank of Korea takes the next step toward practical implementation of CBDC—aiming to improve government subsidy distribution efficiency

The Bank of Korea is entering a new phase of its digital currency project. According to reports in December, preparations are underway for the next round of testing related to Central Bank Digital Currencies (CBDC). The Bank of Korea's clear goal is to collaborate with multiple major banks—integrating CBDC into the government subsidy distribution process to significantly improve administrative efficiency.

A Testing Framework Aiming for Both Efficiency and Transparency

Through the implementation of a subsidy distribution mechanism utilizing digital currency, the Bank of Korea aims to address several challenges. First, reducing administrative costs. Second, by limiting the use of funds, it is expected to prevent misuse and promote efficient utilization of the distributed funds. These efforts have the potential to demonstrate the practical value of CBDC as a key use case.

Lessons Learned from Past Tests

In spring 2024, the Bank of Korea conducted a three-month pilot involving seven banks. However, this initial testing phase yielded results different from expectations. The financial burden on participating institutions exceeded initial assumptions, and the tangible economic benefits proved to be limited. These issues led to a reduction in the scope of the previous program.

Challenges and Outlook for the Next Phase

The specific form and schedule of the upcoming test framework are still being finalized. Based on the lessons learned from the previous failure, the Bank of Korea appears to be designing a more realistic model that imposes less burden on participating institutions. Moving forward toward the practical implementation of CBDC, a cautious and phased approach to verification is expected to continue.