The Central Bank of South Korea issued a warning over central bank digital currencies (CBDCs), saying they could reduce liquidity and push up interest rates.
The news was first reported by local news outlet Yonhap News on February 7, just a week after South Korea’s central bank said that it would not introduce a digital currency itself. The country formally decided against implementing the measure despite a number of governments around the world actively exploring the feasibility of using a CBDC.
According to the Bank of International Settlements, as of this year, around 70 percent of central banks worldwide are conducting some form of CBDC research. A central bank digital currency is a version of a country’s fiat currency based on a blockchain, which can circulate in tandem with paper notes and coins or completely replace it.
However, despite the increased interest in state-issued digital currencies, the Bank of Korea warned about the dangers of introducing such measures. A CBDC would result in mass withdrawals of funds from private institutions, squeezing liquidity and pushing up interest rates, the bank said in a report. SIX is Launching a New Blockchain-Powered Digital Exchange