Bank of Korea Governor Lee Ju-yeol said when central bank digital currencies (CBDCs) are introduced, the demand for existing cryptocurrencies like bitcoin will fade.
Lee’s comments on the sustainability of cryptocurrency came at an event on Wednesday, Park Geun-mo reported for CoinDesk Korea.
“When the central bank-issued digital currency is introduced, the demand for bitcoin and other cryptocurrencies as means of payment will decrease," Lee said.
He also said bitcoin and other crypto assets have high price volatility and so there are limitations to how well they can function as a means of payment or as a store of value.
Lee’s comments come as the Bank of Korea prepares to pilot its own CBDC later this year. A number of countries around the world including China, Russia, Turkey and Jamaica have all announced potential CBDC pilots in 2021.
In South Korea’s pilot, the bank plans to test the CBDC for fund transfers, payments, issuance, distribution and redemption, according to CoinDesk Korea.
Bank of Korea also published research on a national digital currency in February, which concluded that CBDCs are like fiat currency and will meet the requirements for legal tender, as opposed to privately issued cryptocurrencies.
At Wednesday’s event Lee added, "Prior to the circulation of a CBDC, there is a need for an inspection of technological requirements and an in-depth examination of the impact of a CBDC on the financial system.”
Last week, U.S. Federal Reserve Chair Jerome Powell made a similar comment, referring to a report from the Bank for International Settlements (BIS). Speaking at a Basel conference on virtual payments, Powell said a CBDC will need to “coexist with cash and other types of money in an innovative and flexible payment system.”
Lee has had to answer other questions about virtual currencies because of the bitcoin price run and South Korea’s upcoming CBDC pilot.