The Need to Differentiate Central Bank Digital Currency (CBDC) from Virtual Assets in South Korea

On April 24th, it was reported that the definition of virtual assets in the virtual asset related laws currently being discussed in the South Korean parliament does not include provisions on CBDC (Central Bank Digital Currency). The government has always been skeptical about the need to distinguish between CBDCs and virtual assets, but the Bank of Korea actively insists that issuing CBDCs is necessary. It plans to grant CBDCs the status of legal tender to prevent uncertainty caused by confusion with virtual assets. The Political Affairs Committee of the South Korean National Assembly has revealed that they are currently promoting the exclusion of CBDC and its related services from the regulation of the Virtual Assets Act. This was proposed by Kim Han kyu, a member of the National Democratic Party and a member of the government council, with the aim of clearly distinguishing between CBDC and the virtual asset market and preventing policy chaos. The Financial Committee expressed opposition to the proposal on March 28th, but the media stated that the Committee may change its stance on April 25th. (Economic Pioneer)

Korean media: Korean authorities may clearly distinguish between CBDC and virtual assets in legal definitions

As South Korea continues to discuss and draft virtual asset-related laws, recent reports show that the definition of virtual assets being considered does not include provisions on Central Bank Digital Currency (CBDC). This oversight has caused concern among policymakers and financial institutions in the country, as CBDCs are seen as a necessary measure in ensuring financial stability and security in the digital age.

What is CBDC and Why is it Important?

CBDCs are a type of digital currency issued by central banks. Unlike other cryptocurrencies, CBDCs are backed by the government and are considered legal tender. This means that they can be used for all types of transactions and have the same status as physical currency.
CBDCs are an important development in the digitization of the financial sector as they provide numerous advantages over traditional banking systems. They can be used to make faster and cheaper cross-border transactions, reduce the risk of fraud, and increase financial inclusion for those who are unbanked.

The Stance of the South Korean Government on CBDCs

The government of South Korea has been hesitant to distinguish between CBDCs and virtual assets. However, the Bank of Korea (BOK) has been actively advocating for the issuance of CBDCs as legal tender. The BOK believes that CBDCs are necessary to prevent confusion with virtual assets, which could cause uncertainty in the market.
The Political Affairs Committee of the South Korean National Assembly is currently promoting the exclusion of CBDC and its related services from the regulation of the Virtual Assets Act. This is in response to a proposal by Kim Han Kyu, a member of the National Democratic Party and a member of the government council. The proposal aims to clearly differentiate between CBDC and the virtual asset market, which would prevent policy chaos.

The Debate Over Regulation

On March 28th, the Financial Committee expressed opposition to the proposal to exclude CBDC from the regulation of the Virtual Assets Act. However, reports suggest that the Committee may change its stance on April 25th.
This debate highlights the issues surrounding the regulation of digital assets and the need to differentiate between different types of virtual currencies. While some argue that CBDCs should be regulated in the same way as other virtual assets, others maintain that they require special legal status due to their unique characteristics.

Conclusion

In conclusion, the omission of CBDCs from the definition of virtual assets in South Korean law is a cause for concern. CBDCs are an important development in the digitization of the financial sector, and their implementation would provide several advantages over traditional banking systems. The South Korean government must carefully weigh the benefits and risks of regulating CBDCs, and ensure that they are given the necessary legal status to prevent confusion in the market.

FAQs

1. What is the difference between CBDC and other virtual assets?
CBDCs are a type of digital currency issued by central banks and considered legal tender, while other virtual assets are not backed by the government and are not necessarily considered legal tender.
2. Why is the regulation of CBDCs debated?
There is a debate over whether CBDCs should be regulated in the same way as other virtual assets, or given special legal status due to their unique characteristics.
3. Will the South Korean government change its stance on CBDC regulation?
The Financial Committee may change its stance on CBDC regulation on April 25th.