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The Central Bank of Japan has confirmed the phase 1 testing of its CBDC. This will see the Bank experiment with the environment and basic functions of the CBDC.
On Monday the Bank of Japan confirmed that all necessary preparations are complete and it would be commencing Phase 1, Proof of Concept (PoC) testing. BoJ further confirmed that this is expected to run till the end of March 2022. An earlier roadmap noted that the bank would begin pilot testing the CBDC in October 2021. The Bank of Japan further confirmed that a pilot CBDC program involving payment service providers and users would start at the end of the Phase 2 testing. The second phase will add functionality to the phase one environment.
Bank of Japan on CBDC
This recent announcement follows an official establishment of the Liaison and Coordination Committee that includes the private to collaborate with the bank on upcoming CBDC pilots. The BoJ’s activities seem to suggest an accelerated effort to launch the CBDC.
The Bank has in the past noted that a key feature of the CBDC is resilience. In a country prone to natural disasters, the bank hopes that the system can function offline. They wrote:
“Offline use in times of system and network failures, as well as electrical outages, is also important for Japan, given the frequent occurrence of natural disasters.”
In Asia at least, Japan is in a race with China which is already leading. As the world’s second-biggest economy, China is eager to surpass the US. Reducing its dependency on the dollar being a key factor.
Pandemic Accelerates Need for CBDCs
Japan is one of a number of countries looking to launch a CBDC. Leading this by a mile is China. Most recently, China has called for global rules for CBDCs. China made this proposal during a seminar held by the Bank of International Settlements (BIS). The BIS is made up of counties including China and Japan. Established in 2020, it is a digital currency research group made of up central banks. Other members are Canada, UK, Netherlands, Switzerland, and the European Central Bank.
One of the main goals for this coalition has been to ensure international settlement. With CBDCs international settlements will be fast and transparent. On top of this, countries like China are aiming to use CBDCs to reduce the dependability on the USD for international settlement.
Curiously, the world’s largest economy is not on that list. However, over the last few months, there have been discussions around the idea of a digital dollar. Most recently FED chair Jerome Powell stated that the Covid pandemic has accelerated the need for a digital system. He added that this needs to coexist with other forms of payments including cash.