The Bank of Korea(BOK) will launch a pilot program next year to introduce a central bank-issued digital currency or CBDC.

Under the test run, the BOK will issue and retrieve the currency while private sector financial institutions handle its circulation. The central bank began reviewing related legal and technical issues earlier this year.

The pilot program is designed to check whether the currency system will properly operate in a controlled environment and a BOK official said it will run similar to the actual process of cash circulation.

Central bank-issued digital currencies were initially tested mainly in developing nations, but recently countries such as Sweden and China have also been making aggressive preparations. This is in response to falling demand for cash and the emergence of cryptocurrency in the private sector.

BOK said the pilot program is a preemptive response to changes in the payment and transaction culture at home and abroad.