The BoJ first published a paper on its approach to CBDC in October 2020, and it began the first phase of its PoC testing in April 2021. The initial stage targeted exploring the basic functions of a CBDC – namely, issuance, distribution and redemption.
The second phase aims to implement additional functionality of the CBDC, investigate their feasibility, and uncover challenges in the process. During this phase, some key areas of interest might include balancing anti-money laundering requirements with privacy protections. The bank has also previously stressed the importance of cybersecurity for a secure CBDC environment and the incorporation of counterfeit deterrence technology to prevent various illicit activities.
While this PoC experiment focuses on a general purpose CBDC for consumer usage, the BoJ has also conducted experiments for a wholesale CBDC limited to financial institutions. For example, starting in 2016, a joint project with the European Central Bank explored distributed ledger technology (DLT), including for cross border payments.
Japan’s digital currency landscape has been abuzz in recent years, particularly thanks to the creation of a large private digital currency consortium in 2021, that involves some of Japan’s largest banks and industrial companies. The working name for the platform is the Digital Currency JPY (DCJPY), and it has plans to commercialize in 2023. In contrast, the BoJ has yet to announce if it will engage in a pilot program that will involve private payment service providers and users upon completion of the second phase of its CBDC trials.