The Bank of Japan (BoJ) has noted that it will work closely with the private business community in the CBDC pilot program.
The meteoric growth of digital assets has pushed global central banks – including the Bank of Japan (BoJ) – to explore ways to tap the nascent technology for their benefit. Unanimously, most central banks agree that digital assets are not to be banned but to be regulated in order to grow securely. As a result, most global central banks are working on rolling out the best Central Bank Digital Currency (CBDC) to attract foreign and domestic investors.
Furthermore, the race to outperform the United States dollar as the global reserve currency has seen most governments including China roll out CBDC.
Japan on CBDC via Digital Yen
The Japanese government led by prime minister Fumio Kishida through the Bank of Japan (BoJ) has in the past few years explored the best route to rolling out a digital Yen. Already, the Bank of Japan has conducted several initiatives geared toward launching a seamless CBDC. Notably, the Payment and Settlement Systems Department of the Bank of Japan (BOJ) conducted its Proof of Concept (PoC) Phase 1 from April 2021 to March 2022.
During the phase 1 process, the bank developed an experimental environment using several design alternatives for a Central Bank Digital Currency (CBDC) ledger as the foundation of a CBDC system, to evaluate whether its basic functions could be processed appropriately. Having successfully completed the initial phase, the bank undertook PoC Phase 2 from April 2022 to March 2023. According to the BOJ, the evaluated additional functions regarding which it would be desirable to confirm technical issues as early as possible.
Reportedly, the results for phase 2 were evaluated in terms of processing performance and technical feasibility. Additionally, the second phase looked at possible use cases for the digital yen to ensure proper feasibility. The BoJ previously noted that it expects to roll out a proper CBDC as early as 2026.
“Whether to issue a CBDC should be decided by discussions among the Japanese public. To facilitate such discussions, the BOJ will continue to make such thorough preparations as conducting technical experiments to respond to changes in circumstances in an appropriate manner,” the BoJ noted.
Pilot Program
Meanwhile, the BoJ has announced the launch of a digital yen pilot program to test the end-to-end process flow. Additionally, BoJ’s digital Yen pilot program will be used to showcase measures and potential challenges for connection with external systems. Further, the BoJ noted that it will involve private businesses in the pilot program.
“A CBDC Forum will be established with a view to proceeding with institutional arrangements for CBDC in an appropriate manner, and ideas and insights set out by private businesses related to retail payments will be drawn upon to deepen the study,” the BoJ concluded.
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