South Korea is planning to launch a pilot for a central bank digital currency (CBDC) in Q1 next year, involving 100,000 people, according to a report by the Korea Times on Thursday.

The pilot will be operated by the Bank of Korea (BOK) as well as financial regulators, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), the report states.

The initiative will see 100,000 individuals, around 0.2% of the population, able to buy goods using tokens issued by commercial banks in the form of a CBDC, CoinDesk reports. Usage will solely be limited to purchasing goods, with other uses, including remittance, not allowed.

The probable destinations for the pilot program to be carried out are Jeju, Busan, or Incheon, according to reports from July.

South Korea’s central bank believes a CBDC is a potential solution to current government-issued grant systems, including payments during the pandemic and childcare vouchers. Current problems are fraud concerns, high transaction fees and slow settlement.

Over the past few years, central banks of most developed economies have been looking into the development of central bank digital currencies as a way to address the fall in the use of cash and heightened consumer preference to utilise digital means of payment, the CoinDesk report adds.

As it stands, the most advanced is China’s development of its digital Yuan. However, South Korea is not trailing far behind, having finalised testing functions, including the issuance and distribution of a CBDC in a simulated environment back in December 2021.