South Korea’s central bank issued a warning over CBDCs (central bank digital currencies )a week after saying it might not introduce one itself. The development was reported in local news outlet Yonhap press agency, Feb. 7.

Central bank digital currencies, that also are known variously as state-backed or government-backed digital currencies, involve a blockchain-based version of a country’s fiat currency either replacing or circulating in tandem with paper notes and coins.

A number of governments are presently examining the practicableness of employing a CBDC, whereas South Korea formally set against the measure in late Jan.

The decision came as a results of a six-month consultation method from Bank of Korea (BoK).

Now, the central bank has claimed in a very report that a CBDC would lead to mass withdrawals of funds from private establishments, squeezing liquidity and pushing up interest rates.

“The Central bank digital currencies is a kind of a BOK-issued bank account. individuals trust it more than one in a commercial bank,” Kwon Oh-ik, one among the authors of the report explained to Yonhap, adding:

“Demand deposits are one of the biggest sources of loans by banks. once people pull out their cash, banks raise rates, or lower the reserve ratio, to secure a lot of funds.”

Seoul has opted to not create significant changes to its stance on cryptocurrency as a whole in recent weeks. Last month, lawmakers similarly ruled out a u-turn over their ban on initial coin offerings within the country.

According to a report from the Bank of International Settlements — a company primarily based in Switzerland made up of 60 of the world’s central banks — last month, around 70 % of central banks worldwide are conducting some kind of CBDC analysis as of this year.

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