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The central bank of Japan has started the first phase of a feasibility study for its central bank digital currency (CBDC), with a goal of testing the CBDC’s basic functions including issuance, distribution and redemption.

The Bank of Japan first announced that it would be conducting CBDC experiments in December. At the time, the BOJ Governor Haruhiko Kuroda clarified that the bank wasn’t planning on issuing a digital yen. However, it’s important for the bank to be prepared and to keep up with its peers who were advancing their CBDC developments, he stated.

The BOJ has now announced that the experiment on the state bank-backed digital currency has started. In a statement, the bank confirmed that it has been undertaking preparations to begin testing the technical feasibility of the digital yen since the start of the year. “As necessary preparations are now complete, Proof of Concept (PoC) Phase 1 begins today,” it stated.

It added, “In PoC Phase 1, the Bank plans to develop a test environment for the CBDC system and conduct experiments on the basic functions that are core to CBDC as a payment instrument such as issuance, distribution, and redemption. This phase will be carried out through March 2022, for a duration of one year.”

The BOJ has, however, insisted that it’s not close to launching a digital yen. Governor Kuroda stressed this recently, stating in a press conference, “From the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, it’s important to prepare thoroughly to respond to changes in circumstances in an appropriate manner.”

Japan, while trying to keep up with its peers like China, faces a very different local payments system. China has seen a revolution in online and mobile payments adoption in the past decade. In major Chinese cities, over 90 percent of the population use WeChat Pay or Alipay. Mobile payments have over 80 percent penetration in China, compared to Japan’s 23.2 percent.

This heavy reliance on cash payments may be one of the reasons the BOJ has not been as eager to develop a digital yen. Nevertheless, the bank recognizes that CBDCs may play a big role in global commerce in the coming years, as evidenced by its experiments.

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.

See also: CoinGeek Live panel, The Future of Banking, Financial Products & Blockchain

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