[Vol.28 No.4] Essential Roles of CBDC in the Payment System

Financial & Monetary Economics Team(82-2-759-5391)

Author: Young Sik Kim(Seoul National University), Ohik Kwon(Bank of Korea)

 In the digital transformation, central bank digital currency (CBDC) is to play the following essential roles in improving the stability and efficiency of the monetary system as well as stimulating innovation in the payment system. First, in the face of reduced cash use and reduced cash-related infrastructure such as ATM, CBDC can secure access to payment and settlement services for those highly dependent on cash by expanding infrastructure for digital fiat currency. Second, CBDC can not only promote competition and innovation but also contribute to user data and privacy protection by providing open payment service infrastructure under the increasing market dominance and data concentration following the entry of big tech into the payment service market. Third, amid the proliferation of private cryptocurrencies with high price volatility, CBDC can contribute to maintaining the reliability and soundness of the digital economy's monetary system by serving as a means of payment with public trust and a reserve asset for private cryptocurrencies. Finally, CBDC can reduce the digital divide across generations/regions and improve the efficiency of cross-border payment between countries.

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