Japan is joining the exclusive clutch of nations leaning toward central bank digital currencies (CBDCs) following its decision to launch a pilot for the digital yen.
The Bank of Japan (BOJ) announced this latest development at the fifth meeting of the Liaison and Coordination Committee on Central Bank Digital Currency in the presence of relevant stakeholders. Executive Director of the BOJ Uchida Shinichi disclosed that the central bank is “taking the next step” following years of experiments.
Japan’s CBDC pilot will begin in April with the primary goal of testing technical areas not covered by the initial Proof-of-Concept (PoC) stages and leveraging the capacity of private firms with blockchain technology experience. Uchida stated that the pilot will not be wholly centralized but divided into several intermediary network systems for efficiency.
“On this basis, we plan to test the end-to-end process flow and outline the measures and potential challenges for connecting the experimental system with external ones,” said Uchida.
The proposed pilot will attempt to find a workable solution for offline payments while exploring the value-added services and a strategy for a full-scale launch. Uchida added that since a majority of the goals are intertwined, “We expect the findings gained through these approaches to feed back into efforts being made in pursuing each aim.”
Japan’s foray into CBDCs began in 2020 with the publication of “The Bank of Japan’s Approach to CBDC,” where it launched a PoC to explore the feasibility of the technical aspects of a digital yen. The central bank created a sandbox around a ledger that scaled through the preliminary testing requirement for issuing a digital yen to achieve this.
In April 2022, the BOJ proceeded to the next PoC stage, where it focused on additional functionalities, including processing performance and whether or not technical difficulties may arise when users have multiple accounts. The second PoC stage is expected to continue throughout March, with the central bank confirming that processing performance can be maintained in the face of additional features.
A frenetic approach toward CBDCs
Several countries are joining the bandwagon of CBDCs after showing an initial hesitation toward digital currency. Russia sped up its digital ruble launch date to 2023 after initially planning for 2024 as it looks to start its CBDC pilot in April.
India’s pilot successfully onboarded an impressive 50,000 users and 5,000 businesses within weeks of its launch. Despite a warning from the Reserve Bank of India (RBI) that it will proceed cautiously, the figures could balloon in the coming weeks after the pilot expands to more cities.
Zambia, Indonesia, Laos, Thailand, and China are countries looking into the launch of CBDCs as they hope to prevent the “cryptoization” of their local economies.
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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