South Korea Central Bank Researchers Find Issuing Own Digital Currency is Economically Hazardous | News ICORating
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South Korea Central Bank Researchers Find Issuing Own Digital Currency is Economically Hazardous

South Korea Central Bank Researchers Find Issuing Own Digital Currency is Economically Hazardous

The central Bank of Korea (BoK) published a report of their evaluation on how a Central Bank Digital Currency (CBDC) can affect the liquidity of commercial banks.

Supposing that a CBDC could be directly accessed, the public’s need to make deposits in commercial bank accounts will be reduced, therefore depleting the bank’s reserves. The aftereffect of a cash deficiency will be the strengthening of interest rates, the report stipulates.

Kwon Oh-Ik, one of the authors of the study, implies that if a central bank digital currency is implemented, support plans must be put into place to prevent hazards from disrupting an economy’s financial stability.

This is not the first time BoK underscored the negative implication of a CBDC. In June of 2018, the central bank characterized it as a ‘moral hazard’ stating its potential to harm the present monetary law and its application. They went further by saying, since it does not operate similar to fiat, it may cause the market to turn unstable.

Other Central Banks’ Views on CBDC

In March 2018, the Switzerland-based bank of central banks, the Bank of International Settlements, implored to caution central banks who are planning their own digital currency. But six months from that time, the BIS issued a new report implying that these digital currencies do not equate a threat to financial stability.

In contrast, Christine Lagarde, Chair of the IMF, exhorted central banks to study CBDCs in lieu of the dwindling preference for fiat and an increase in demand for money’s digital counterpart. She also indicated, ‘fintech is going to shake the system.’

Image credit: Unsplash

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