Likely Pressure on Digital Currencies, Warned South Korea Central Bank
Central Bank of South Korea which announced it would not introduce its own cryptocurrency last week, has recently warned about national or central bank-issued digital currencies. This report was first published on February 7 in Yonhap News Agency, a local news outlet.
Central Bank Digital Currency, known as CBDC, is supported in different ways through digital money units. These cryptocurrencies are a Blockchain version of fiat money which either replaces paper money and coins or is circulated concomitant with them.
The idea of national digital currencies or CBDC has drawn the attention of many governments around the world. Some counties have released their own national cryptocurrencies; some others are still investigating and studying their economic effects, while some other countries like South Korea has opposed this idea. CBDCs are cryptocurrencies published and controlled by a federal supervising agency; in other words, they are completely controlled by the government.
On the contrary to national digital currencies, many of them are decentralized and will be the representative of fiat money in its non-digital form. After releasing national cryptocurrencies both the government and the account owners oversee this money. Each unit of national cryptocurrency is a safe digital equivalent for the paper money and generally uses Distributed Ledger Technology.
Currently, some governments have addressed the possibility of using CBDCs. At the same time, South Korea has officially made a decision late in January to counter this measure. This decision is the result of a six-month consultation process on the part of the Bank of Korea (BOK).
According to a report published recently, the central bank of South Korea has announced that a CBDC can lead to a huge capital withdrawal by private institutions and accordingly a pressure on liquidity and increase of interest rate.
Kwon Oh-ik, one of the co-authors of this report explained to Yonhap news agency that CBDC is, in fact, a type of bank account at the Bank of Korea which people trust much more than a commercial bank.
He further explained that demand deposits are among the greatest loan resources for the banks. When people withdraw from their accounts, the banks increase the interest rate or the reserve ratio to earn more fund. In the current week, Seoul has not made any decision regarding dramatic changes in its stance toward digital currencies.
Last month, legislators in this country rejected a bill denoting the prohibition of ICO in South Korea.
Based on the last month report from Bank of International Settlements, BIS, about 70% of the world’s central banks implement a part of research related to CBDC in the current year.
BIS is an international organization which gives services as a bank including the membership of 60 central banks and reinforces financial and monetary partnerships. It was founded on May 17, 1930, and is considered as the world’s oldest international financial agency. It is located in Basel, Switzerland. This banks, whose members are central banks, does not receive deposits from private companies and citizens and does not offer financial services to them.