'110 trillion won' digital currency experiment resumes… Lee Chang-yong "Banks that won't invest, stay out"

The Bank of Korea said it will promote a government program to pay state subsidies totaling 110 trillion won in digital currency as a subproject of the second 'Han River' project. Targeting banks that raised complaints about investment amounts in the initial project, it said, "This project will be carried out only with banks that are willing to invest."

Bank of Korea Governor Lee Chang-yong said on the 28th at a press briefing after the Monetary Policy Board's meeting on the direction of monetary policy, when asked about the government's announcement to pay state subsidies in digital currency, "It will be conducted as part of the second project of 'Han River' (the Bank of Korea's digital currency project)."

The project involves paying part of state subsidies amounting to 112 trillion won in digital currency instead of cash or vouchers. It aims to prevent subsidies from being used improperly by utilizing blockchain technology and to reduce the administrative and financial costs of managing them.

The digital currency will be issued by commercial banks based on the Bank of Korea's central bank digital currency (CBDC) and a blockchain system, and transferred to recipients' electronic wallets (smartphone apps). The currency is linked to the existing currency value and can be checked and managed in real time on the Bank of Korea's digital ledger, the blockchain.

The difference from the Bank of Korea's CBDC is that its usage is limited. While CBDC can be used anywhere like cash, the government's digital currency can only be traded between recipients and businesses related to state subsidies.

The governor explained, "If subsidies are paid in digital currency, it is possible to pay subsidies immediately when a prime contractor signs a contract with a subcontractor, or to program the subsidy so that it can only be used by related companies when it is for a specific business purpose," adding, "Deputy Prime Minister Koo Yun-cheol recently made this proposal when he visited the Bank of Korea."

The governor also made it clear that this project will proceed only with some banks. He said, "Because the scale exceeds 110 trillion won, it will be an incentive for banks to participate," and "Based on the experience of the first project, we will focus on banks willing to invest rather than open it to all banks."

This remark is understood to have been made with the complaints raised by participating banks in the first project, which ran until July, in mind; those banks had complained to the Bank of Korea about infrastructure investment costs and other issues. At the time, some banks protested, "The Bank of Korea shifted infrastructure construction and merchant acquisition onto the banks and only pressured them." Controversy also arose when the related report was published.

Inside and outside the Bank of Korea, it is expected that the banks that voiced complaints at that time will find it difficult to participate in this project.

Reporter Kang Jin-kyu josep@hankyung.com