The BOK is planning to test the operation of a central-bank digital currency, also known as CBDC, in a limited environment this year, to explore the potential use of a digital currency.
"The Bank of Korea is conducting an analysis of operational procedures for a CBDC rollout, and outside consulting is also underway. This year, we're going to launch a CBDC pilot system in a virtual environment, and run tests to verify its functions and safety."
The BOK on Monday also issued a book on legal issues surrounding CBDC, calling for revisions to the law to create an environment where such a currency can successfully operate.
The digital currency would be based on blockchain technology, and would allow people to send money directly to each other without it needing to pass through a bank or other intermediary, cutting transaction costs.
"Transformation from cash to digital currency could raise GDP by as much as 3 percent. Digitalization of currency would accelerate currency circulation and reduce maintenance costs. It would also be an efficient way to realize negative interest rates, overall enhancing the government's monetary management."
China has already began testing its digital yuan.
Last October, Shenzhen gave away digital yuan to 50-thousand people in a lottery.
Other trials followed in various regions including Suzhou, Beijing and Shanghai.
The U.S. last year, revealed a collaboration between the Boston Federal Reserve and MIT on a research project to construct and test a digital dollar.
The European Central Bank is also exploring ways to launch a digital euro.
An expert stresses the need for South Korea to step up its research.
"The U.S. dollar may be the standard currency for cash, but China is aiming to make digital yuan the new dominant medium. South Korea needs to develop strategies on what position the country will take in the new monetary era."
The expert also called on the need to minimize potential drawbacks of central bank digital currencies --such as economic inequality from gaps in digital information.
Kim Jae-hee, Arirang News.