South Korean banks favor Certificate of Deposit (CD) tokens as possible alternatives to “volatile” stablecoins, as reported by South Korean news organization Pulse on July 24.
According to Pulse, industry sources have revealed that Hana Bank plans to conduct research into CD tokens as part of the bank’s preparations for a possible Central Bank Digital Currency (CBDC) project led by the Bank of Korea.
Woori Bank has also expressed interest in CD tokens, as revealed by a recent report from its investigative body.
South Korean crypto regulation
This development comes as South Korea’s financial regulators finalize aspects of new rules for the country’s cryptocurrency industry.
As previously reported by cryptoleiupcoming legislation will focus on regulating crypto asset issuance, addressing conflicts of interest and establishing a robust framework to oversee stablecoins.
Following the passage of the Virtual Asset User Protection Act earlier this year, which introduced protective measures for investors, the Financial Services Commission (FSC) is considering expanding the scope of the law to crypto asset management companies following the recent suspension of withdrawals by two investment platforms, Delio and Haru Investments, due to their interconnectedness.
CD Tokens
According to Pulse, CD tokens, which turn bank deposits into tokens using blockchain technology, could replace payments that are currently settled with money directly from bank accounts. This interest in CD tokens was particularly sparked after the collapse of Silicon Valley Bank (SVB) in March this year.
Unlike stablecoins, CD tokens are based on existing banking systems and offer greater reliability, with transactions settled using CBDCs issued by central banks.
Pulse also highlighted one of the critical features of CD tokens, the identity verification requirement, as they are issued based on bank deposits. For existing financial institutions, this could provide an advantage over stablecoins, which could become untraceable once issued, potentially posing regulatory oversight and fraud prevention issues.
Stable coins in APAC
This development in the South Korean banking sector is in line with wider global adoption of digital currencies and stability trends. For example, Circle, the provider of the USDC stablecoin, recently expressed interest in targeting the 74% of trade billing in Asia Pacific (APAC) that is conducted in US dollars.
Circle believes that the digital dollar, especially USDC, has the potential to significantly impact APAC’s financial landscape given the dollar’s dominance in financial transactions in the region over the past two decades.
Highlighting USDC’s potential in the APAC region, Circle CEO Jeremy Allaire stated that it is clear:
“USDC takes the power of the dollar and gives it the power of the internet, making it as quick and easy to move as a text message.”
Circle aims to revolutionize cross-border payments, drastically reduce the cost of remittances and enable traceable humanitarian aid.
As the FSC prepares for a second phase of regulatory review, the rise of CD tokens and Circle’s expansion plan could spark a battle between CDs and stablecoins for digital asset market share.
Banks’ fears of decentralized digital assets and preference for traceable tokens support the global expectation that CBDCs are on the way and will give governments or central banks even greater access to citizens’ financial histories.