According to one local media outlet, the reserve bank of South Korea has warned some other nations about the inherent risks of introducing the central bank digital currency or CBDC.

Exploring the feasibility of Central Bank Digital Currency or CBDC

This warning from the central bank of South Korea, which was issued on the 7th of February, came shortly after the first financial institution said that it is going to be launching its own CBDC.

The CBDC, which can also be referred to as backed by the state or controlled by the government’s digital currency, may also involve the use of a distributed ledger technology or DLT-based transaction system so it can create a digital version of the fiat currency of the country.

But, a lot of analysts criticized this approach, because they argue that the currency models which are based on blockchain are actually more appropriate for the decentralized cryptos. Despite the arguments, there are now a few countries which look into the feasibility and desirability of launching a CBDC. However, South Korea has decided that it is not going to issue a CBDC.

Launching a CBDC may lead to mass withdrawals of funds from private banks

After they invested the probable benefits of creating a CBDC through a six-month consultation process, which was commissioned by the central bank of South Korea, the authorities of Korea are seemingly not really interested in issuing a state-controlled digital currency.

In one announcement which warns other central banks, the banking officials of South Korea noted that launching a CBDC might lead to mass withdrawals of funds from the private banks. This may also result in some importantly lower liquidity, as well as higher interest rates, which the reserve bank cautioned.

One of the leading authors of the BOK report, Kwon Oh-Jk, explained that CBDC is a type of BOK-issued bank account. People trust it more than any other in a commercial bank. Demand deposits are also one of the most significant sources of loans by banks. When people pull out their money, the banks raise rates or lower the reserve ratio, to secure more funds.

Maintaining the local ban on ICOs and introducing taxes on crypto

Additionally to the issuing of the warning regarding CBDCs, the government of South Korea decided to retain its ban on ICOs or initial coin offerings. The financial regulators of the nation remain concerned about the several scams which were carried out by companies under the guise of ICOs.

Even though the citizens of South Korea are permitted to participate in ICOs which are conducted abroad, there are firms which already took advantage of the loophole by attending token sales in the East Asian country after registering their ICO overseas.

Earlier in December of last year, the government of South Korea also announced its plans to impose some taxes on the income which was generated from ICOs, as well as crypto trading.

According to one document which was submitted last year by the finance minister of South Korea, the new taxation plan is going to be implemented on the basis on the current taxation system of the nation, and also on the international discussion pertaining to the topic.

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