The Bank of Korea released a research result showing that the central bank digital currency (CBDC) can be recognized as a fiat currency (legal currency) rather than a virtual asset.
The researchers believe that CBDC can be exchanged for cash and that the provisions for reserves are applicable. In order to punish CBDC-related crimes, it was suggested that the enforcement law and the currency counterfeiting law, which were applied to cash, should be amended.
On the 8th, the Bank of Korea announced the results of external research services conducted in 2020 on the subject of legal issues related to CBDC and directions for enactment and amendment of laws. Seoul National University Professor Jeong Soon-seop, Seoul National University Professor Jeong Joon-hyuk, and Lee Jong-hyuk Hanyang University professor took over the research.
The researchers saw that CBDC only has a different means of denoting currency and currency, and it can give legal status as it can meet the requirements of currency legislation. Under the Bank of Korea Act, only the BOK has the right to issue currency (the monopoly power of issuance), and the Bank of Korea note is legal currency and is used in all transactions without limit (compulsory power).
As the currency issued by the BOK under the current law consists only of the Bank of Korea notes (Article 48) and coins (Article 53), he emphasized that the Bank of Korea Act must be amended to establish the basis for issuing CBDC.
The researchers also checked whether CBDC can be viewed as an object, bond, or securities.
According to the report, CBDC is data that has an inherent monetary value, but the data is not a civil law object. Also, since CBDC holders cannot exercise any rights against the Bank of Korea, they cannot be viewed as bonds. It is difficult to view CBDC as a securities under the Capital Markets Act because there is no reason to view CBDC unlike general legalization.
However, he added that the compulsory execution law that applies to cash cannot be applied as it is, and that the CBDC method must be separately stipulated in the Civil Execution Act.
The researchers believe that CBDC and cash can be exchanged with each other as they are legal currencies with equal status. However, he added that it is necessary to consider whether there are any disadvantages to the financially underprivileged due to the distribution of CBDC, and how much the benefits related to payment and settlement will increase. It also suggested that it is necessary to decide whether the BOK will directly exchange CBDC and cash or have an intermediary agency.
Based on this, it was considered reasonable to apply the provisions related to reserves for deposits of customers held by financial institutions as CBDCs.
It also suggested that the CBDC is not subject to the Electronic Financial Transactions Act. This is because the issuance of CBDC by the BOK is based on the monetary authority (monopoly of issuance rights) and is not for profit.
“CBDC, unlike virtual assets”
The researchers defined CBDC as different from cryptocurrency (virtual asset). The Special Law defines virtual assets as’electronic certificates that can be traded or transferred electronically as having economic value’. However, it may be interpreted that the CBDC is included as the issuer is not specified.
In response, the researchers drew a line that “CBDC has a clear issuer called the Bank of Korea, and it is based on the exclusive issuing power of the BOK, so it cannot be viewed the same as a normal virtual asset.”
For the clear interpretation of the bill, it was proposed to add CBDC as one of the clues to Article 2, No. 3, which enumerates exclusions from virtual assets among the special laws.
The researchers also dealt with the issue of handling CBDCs when they are subject to crime. It is reasonable to interpret that the CBDC is also included in the object of counterfeiting of domestic currency (Article 207, Paragraph 1 of the Criminal Code), etc. To this end, it suggested that a revision of the criminal law on the premise that the CBDC is included in currency is necessary.
Since the CBDC is not considered property under the criminal law, it was considered that theft, embezzlement, and stolen property could not be established. On the other hand, the crime of robbery, fraud, intimidation, and damage to which electronic records are defined as objects of property and property are considered to be possible.
The researchers suggested that it is possible to confiscate CBDC. The researchers said, “It is reasonable to assume that objects subject to confiscation under the Criminal Law include rights or interests as well as liquids, and the Supreme Court ruled that the Crime Concealment Control Act is applied to virtual assets. In light of this, CBDC can also be confiscated. “He said.
Law enforcement measures such as seizure were divided into online CBDC and token-type CBDC, and presented as follows.
The report also mentioned interest rate issues. It was interpreted that the interest paid to the CBDC was technically close to a’change in the amount of money’. Following the deliberation and resolution of the Financial Monetary Commission, it is expected that the amount of money can be adjusted by paying positive (+) or negative (-) interest to the CBDC. To this end, it proposed that the Bank of Korea Act should have a legal basis for the possibility of applying the CBDC negative interest rate.
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