Today the Bank of Japan (BoJ) confirmed that it has started central bank digital currency (CBDC) trials. The aim is to explore the technical feasibility of a digital yen in its first phase Proof of Concept (PoC) which will last for a year to March 2022. The central bank has not yet decided whether to proceed with a CBDC.
A short statement said it would trial basic functions such as issuance, distribution and redemption.
Six months ago, the central bank published a CBDC document in which it outlined three stages of trials, including two phases for Proofs of Concept followed by a pilot.
In March, BoJ Governor Haruhiko Kuroda also spoke about some of the drivers. Japan’s objectives are a little different from most countries because of the heavy use of cash in retail payments and the 2011 earthquake and tsunami, which caused widespread disruption. Hence there is a greater emphasis on the ability to execute payments offline.
Although the cash usage is still high, the BoJ is keen to be prepared for change. And it also wants to support a digital society. Additionally, the central bank is eager to improve payment and settlement efficiency. Most domestic payments are executed during banking hours. Addressing this limitation is one of the motivations behind various private sector initiatives such as SBI’s Money Tap (which uses RippleNet technology) and Mizuho’s J-Coin, which does not use blockchain technology.
Meanwhile, other digital currency initiatives are forging ahead. China’s digital yuan trials have progressed to a second wave of pilots, the Bahamas launched its Sand dollar last year, and other Caribbean states are following, with the Eastern Caribbean starting a blockchain-based pilot and Jamaica announcing CBDC plans that don’t include blockchain.