The Bank of Korea (BOK) has announced its active consideration of cryptocurrency and blockchain technology to advance the nation’s transition into a cashless society. This initiative aligns with the central bank’s ongoing efforts to reduce physical currency usage and modernize the financial ecosystem.
Since 2017, South Korea has encouraged a “coinless society” by eliminating change from convenience store transactions. Plans to stop minting coins were set for 2020. The emergence of cryptocurrencies presents new opportunities to accelerate this vision.
BOK’s 2017 Payment Settlement Report
On April 30, the BOK released its “2017 Payment Settlement Report,” outlining its dual focus: continuing the coinless society initiative and collaborating with other central banks to study blockchain and crypto applications in payments and settlements.
The report emphasized the importance of interbank cooperation and technological innovation in shaping future payment infrastructures.
Central Bank Digital Currency Research
In January 2018, the BOK established a dedicated research team to explore the potential issuance of a central bank digital currency (CBDC). This group examines the broader impact of digital currencies on the financial system and assesses the feasibility of a state-backed cryptocurrency.
The team also collaborates with government agencies to align technical development with regulatory standards.
Global Tax Treatment of Cryptocurrencies
Countries like Japan and the United States have adopted distinct approaches to cryptocurrency taxation. Japan classifies virtual currencies as commodities, subjecting trading profits to taxation. The U.S. treats them as assets, applying capital gains tax on income generated from crypto transactions.
In March 2018, the G20 Finance Ministers and Central Bank Governors meeting concluded that cryptocurrencies should be regarded as assets rather than currency. Most countries avoid applying value-added tax (VAT) to crypto transactions to prevent double taxation—a scenario where consumers could be taxed both when acquiring and spending digital assets.
South Korea is likely to follow this asset classification model.
Distributed Ledger Technology and Interbank Transfers
The BOK is also investigating distributed ledger technology (DLT) for enhancing interbank transfer systems. Pilot programs are underway to evaluate the security, efficiency, and scalability of blockchain-based settlement mechanisms.
These efforts aim to reduce transaction costs and increase the speed of domestic and cross-border payments.
International Cooperation and Standards
The BOK remains active in global dialogues, participating in discussions hosted by the Bank for International Settlements (BIS) and the Committee on Payments and Market Infrastructures (CPMI). These collaborations help shape international standards and best practices for digital currency integration.
Engagement with other central banks and financial institutions ensures that South Korea remains at the forefront of fintech innovation.
Legislative Support for Blockchain Growth
On May 2, 2018, South Korea’s National Assembly Speaker, Chung Sye-kyun, attended a large-scale discussion on blockchain industry promotion. Hosted by lawmaker Hong Eui-rak in collaboration with the Korea International Trade Association and the Korea Blockchain Industry Promotion Association (KBIPA), the forum addressed proposed legislation to support blockchain innovation.
Attendees discussed regulatory improvements and growth strategies, signaling strong governmental interest in nurturing the blockchain sector.
Frequently Asked Questions
What is a cashless society?
A cashless society uses digital forms of payment instead of physical cash. Transactions occur via cards, mobile apps, or cryptocurrencies, offering greater convenience and traceability.
How can blockchain support payment systems?
Blockchain enables secure, transparent, and fast peer-to-peer transactions. It reduces the need for intermediaries, lowers costs, and minimizes fraud, making it ideal for modernizing financial infrastructures. 👉 Explore more strategies for digital payments
Why are central banks exploring digital currencies?
Central banks see digital currencies as a way to enhance payment efficiency, support monetary policy, and provide a secure alternative to private cryptocurrencies.
Is cryptocurrency legal in South Korea?
Yes, cryptocurrency is legal and regulated in South Korea. Exchanges must comply with anti-money laundering (AML) and know-your-customer (KYC) requirements.
What are the risks of a cashless economy?
Risks include privacy concerns, cybersecurity threats, and exclusion of individuals without access to digital technology. Proper regulation and inclusive design are essential.
How does South Korea plan to prevent double taxation on crypto?
By classifying cryptocurrencies as assets rather than currency, South Korea aims to avoid complex VAT applications and align with international tax norms.