The Bank of Japan (BOJ) has announced the completion of the first phase of its central bank digital currency (CBDC) testing, which started in 2021, and the commencement of the second phase.
BOJ launched the first phase of its CBDC Proof of Concept in April 2021. As CoinGeek reported at the time, this phase focused on the basic functions of a digital yen, including issuance, distribution, and redemption. Governor Haruhiko Kuroda made it clear that it was just a feasibility study and the bank was nowhere close to issuing a digital yen.
“The Bank of Japan has been conducting experiments since April 2021 to test the technical feasibility of the core functions and features required for [a CBDC],” the central bank said in its statement.
This first phase has now successfully come to an end, the bank has revealed while also announcing the launch of the second phase, which will kick off next month.
“In April 2022, the bank will move on to … Phase 2, in which it will implement various additional functions of the CBDC in the test environment developed in Phase 1 and investigate their feasibility, as well as challenges,” it said.
Some of the aspects of the digital yen that the second phase will cover will include handling anti-money laundering programs, protecting the privacy of the users, and ensuring that the CBDC ecosystem is safe from cybercriminals.
As BOJ keeps up with its peers and works on a digital yen, it faces a unique challenge in getting the Japanese public to adopt the CBDC. Japan is notoriously cash-reliant despite being the world’s third-largest economy and the birthplace of the QR code system, which is used in most digital payment solutions. According to some studies, as much as 76% of transactions in 2021 were made in cash, a stark contrast to neighboring South Korea, where over 80% of transactions are cashless.
This reliance on cash may prove to be one of the biggest hurdles to the adoption of a digital yen.
To boost uptake, the BOJ has said that it will prioritize simplicity and interoperability with the design of its CBDC.
“To achieve vertical coexistence, a relatively simple central bank digital currency (CBDC) design is desirable for the private sector to use it as an ingredient to develop various services,” one BOJ executive opined in October.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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