The South Korea Central Bank seems to be a lot in the crypto news lately and today’s again for issuing a warning over central bank digital currencies according to a report from local news outlet Yonhap News Agency.
CBDCs are basically state-backed digital currencies that involve a blockchain-based version of a certain country’s fiat currency by circulating in tandem or totally replacing the paper notes and coins.
South Korea decided against the use of CBDCs while other countries are looking into the possibility of using them. The decision comes after a six-month consultation with the Bank of Korea. The central bank claims that CBDCs can lead to mass withdrawals of funds that will lead to squeezing the liquidity and will push up the interest rates:
“The CBDC is a kind of a BOK-issued bank account. People trust it more than one in a commercial bank. Demand deposits are one of the biggest sources of loans by banks. When people pull out their money, banks raise rates, or lower the reserve ratio, to secure more funds.
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The Bank of Korea has previously stated:
“We have no plans to issue any type of CBDC that is available for all people in the near future. We have to work further on the benefits and costs of CBDC implementation first.”
Seoul decided not to make any major changes to its stance on cryptocurrency in general. However, in other countries such as Switzerland, the Bank of International Settlements provided support where it shows that 70 percent of the central banks worldwide are conducting a CBDC research in some form for 2019.
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