Korean central bank study reveals economic risk of issuing digital currency

A study conducted by the Bank of Korea (BoK) has concluded that issuance of a central bank digital currency (CBDC) will have negative ramifications on the economy.

The study found that issuance of CBDCs may affect liquidity at commercial banks as the customer demand for deposits or reserves might be reduced.

“This has negative effects on financial stability, which increases the likelihood of bank panic in which commercial banks are short of cash reserves to pay out to depositors,” the report states.

The report comes just one week after the BoK confirmed there was “no urgent need” to introduce a CBDC, despite the likes of Sweden and Tunisia considering implementing their own.

“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 benefits and costs of CBDC implementation first,” an unnamed BoK official said, as quoted in the Korea Herald.

The issue of CBDCs has been a much-disputed topic in the cryptocurrency space over the past year, with cryptocurrency skeptic Nouriel Roubini claiming that central bank-issued digital currencies would “destroy Bitcoin.”

“Most of these FinTech innovations are still connected to traditional banks, and none of them rely on cryptocurrencies or blockchain. Likewise, if central bank digital currencies (CBDCs) are ever issued, they will have nothing to do with these over-hyped blockchain technologies,” he said in an article for UK news publication the Guardian.

He added: “Nonetheless, starry eyed crypto-fanatics have seized on policymakers’ consideration of CBDCs as proof that even central banks need blockchain or crypto to enter the digital-currency game. This is nonsense. If anything, CBDCs would likely replace all private digital payment systems, regardless of whether they are connected to traditional bank accounts or cryptocurrencies.”

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