South Korea’s KEB Hana Bank is set to work with the Central Bank of Korea (BoK) on its CBDC pilot and stablecoin options such as token deposits.
According to the newspaper Maeul Kyungjae, Hana Bank is now “actively participating” in BOK’s ongoing CBDC proof-of-concept project.
The paper added that the BOK and HANA will “actively participate in the preparation” of a “currency system based on blockchain technology”.
The parties are now conducting “internal research” on “tokenized deposits”.
Central banks have looked to popular stablecoins for inspiration in their CBDC projects.
But they believe they can take a better step by improving the design of traditional stablecoins.
He has labeled such coins as “private token money that circulates as a bearer device”.
As De Blasis et al demonstrated earlier this year, popular stable coins such as the USD-pegged USDT experience some level of price volatility.
And this volatility is something central banks seem eager to avoid at all costs in their CBDC projects.
In April, the Bank for International Settlements (BIS) published a paper on token deposits and their potential to displace stable coins in the financial and banking sectors.
The BIS claimed that stablecoins could “deviate away from par in their relative exchange values in violation of the ‘singularity of money’.”
As an alternative, token deposits, which are blockchain-powered, “do not circulate as bearer instruments, but instead settle in central bank money” and are “more conducive to isolation,” BIS wrote.
BIS also claimed that token deposits could “enable expanded functionality by building in the capability of programmable ledgers to introduce contingent execution and transaction composition.”
The BOK appears to have taken these recommendations seriously.
And South Korean commercial banks, apparently concerned that they could be left out of the CBDC picture, are eager to carve a niche for themselves in the sector.
HANA has been exploring the blockchain space for almost half a decade.
It is foraying into blockchain-powered real estate and investing in research related to the crypto sector.
Meanwhile, BOK is working with several commercial banking partners on the Digital KRW project.
South Korea’s banking sector expresses interest in ‘tokenized deposits’
Maeil Kyungjae called token deposits an “emerging hot topic” in the financial world.
The BIS’s April paper was co-authored by Hyun Song Shin, a former economic advisor to the South Korean presidency.
The Woori Financial Management Research Institute of Hana rival Woori Bank also recently published a report on token deposits.
And the media outlet noted that domestic commercial banks began to “show a lot of interest in tokenized deposits” when BOK governor Lee Chang-yong told attendees of a BIS event in March that “there is a need for tokenized deposits” in the banking industry.
Last month, Hana’s Management Research Institute predicted that the domestic security token market would grow to approximately $27 billion over the next year.