South Korea's central bank releases research report: Bitcoin and legal currency can coexist

Golden Finance News - On April 25, the Central Bank of South Korea just published a research report comparing cryptocurrencies such as Bitcoin with traditional legal currencies issued by the government.

Recently, the South Korean central bank has continued to strengthen its research on digital currencies such as Bitcoin.

South Korea’s Central Bank Studies Relationship Between Bitcoin and Fiat Currency

(South Korea's central bank studies the coexistence of Bitcoin and legal tender. Image source: Golden Finance)

Researchers from Hongik University in Seoul and member institutions of the Bank of Korea (BOK) published a paper titled "Crowding out in a Dual Currency Regime."

The article, written by Kihoon Hong, Kyounghoon Park, and Jongmin Yu, details how Bitcoin and fiat monetary systems could collaborate in a “dual currency system” in the future.

The authors of the BOK study explain:

“The rise of Bitcoin could have significant implications for our monetary system because they are not regulated by central banks.”

The recent emergence of digital currencies has opened up a new type of dual currency system, where “digital currencies with no intrinsic value” and government-issued fiat currencies coexist. A well-known example of “digital currencies with no intrinsic value” is Bitcoin.

Dual Currency System

Essentially, the report states that the traditional fiat currency system can coexist with digital currencies such as Bitcoin. The report states that the demand relationship between using fiat currency and digital currencies may change depending on the cost difference.

(BOK report: legal tender can coexist with digital currency. Image source: Golden Finance)

The BOK research report details that “the high cost of using fiat currencies increases the demand for digital currencies. Similarly, the high cost of using digital currencies also increases the demand for fiat currencies.”

“In an imperfect monetary world, where costs associated with using money are uncertain, the relative costs of using digital currencies are unlikely to crowd out fiat currencies entirely.”

“Our findings suggest (not suggest) that equal demand for fiat and digital currencies would allow for the coexistence of both currencies.”

South Korea’s interest in digital currencies continues to grow

Bitcoin has made significant progress in South Korea, with the country ranking fifth in the world in terms of Bitcoin trading volume.

(South Korean Bitcoin Exchange launched a KSM project based on blockchain technology. Image source: Golden Finance)

Last November, when the Financial Services Commission (FSC) of South Korea was talking about regulating Bitcoin this year, South Korean Bitcoin exchanges launched a KSM project (Korea Startup Market) based on blockchain technology.

BOK's latest research report shows that the country's officials are very interested in Bitcoin. The authors said they hope to provide a research report to help South Korean officials and regulators understand Bitcoin and blockchain as a new technology.

The paper goes on to state that future research could observe the impact of digital currencies on the Korean economy both theoretically and empirically.

In addition, researchers at the Bank of Korea also said that they may study the possibility of coexistence of three different types of currencies in the near future.

“In addition, we may try to expand our model to other digital currencies, a triple currency system of central bank-issued digital currencies and fiat currencies.”