The central bank of South Korea (BOK) has published its 2022 Payment and Settlement Systems Report. The supervision of the systems was carried out successfully, the report sayingand is preparing for a future with central bank digital currency (CBDC) and extensively discussing stablecoin regulation.
The BOK-Wire+ fast payment system will be upgraded to real-time gross settlement (RLGS) and has adopted the ISO 20022 standard, which is expected to be implemented in 2028, according to the report. The bank will also increase supervision of "Big Tech" payment services and build its capabilities to respond to "IT operational risk."
The BOK continued its preparations for the possible introduction of a CBDC, which included investigating the use of smart contracts, offline payments with near-field communications, and cross-border payments. The bank connected 14 banks and the Korea Financial Telecommunication and Clearing Institute (KFTCI) with its simulated CBDC system during the second half of the year to verify its operation.
โIn line with these international trends, future Korean regulations for crypto assets could also include a separate set of rules for stablecoins.
Stricter rules should apply to stablecoin issuers and related service providers regarding entry regulations, such asโฆ pic.twitter.com/czbhJAvqaY
โ Joshua Rosenberg (@_jrosenberg) July 19, 2023
The system handled 2,000 transactions per second. That figure is higher than most national payment systems, the report noted, but it slowed as it reached capacity, so further improvements are needed.
The bank attempted to use a zero-knowledge proof protocol to erase CBDC transactions to improve their privacy. That allowed it to hide the wallet addresses and transaction payment amount, but markedly reduced the processing speed and security implications of a zkCBDC. have not been investigated. He said that he might also consider homomorphic encryption.
Related: CBDCs Should Protect Privacy, Not Be A Surveillance Tool: Former CFTC Chairman
The BOK will intensify the investigation of CBDC, with plans to look into CBDC-based tokenized deposits and expand the scope of the investigation with banks and KFTCI. He said:
"A key focus of the BOK's research will be to identify a CBDC operating model with minimal adverse impacts on the stability of the financial system and the effectiveness of monetary policy."
The report noted โconcreteโ progress towards regulating crypto assets in the country with the introduction of the Framework Law on the Digital Assets Law, but the regulatory framework is still too incomplete to allow cryptocurrency payments. The bank is also involved in stablecoin discussions, he repeatedly claimed.
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