Blockchain for Banking News

Bank of Japan announces pilot phase for Digital Yen

digital yen currency cbdc

Today the Bank of Japan confirmed its central bank digital currency (CBDC) research will enter a pilot phase in April, following two years of proofs of concept (PoC).

The central bank has not yet decided to issue a digital yen. The eventual decision may require a referendum. The central bank sees the multi phase pilot program as a first step towards finding designs that can address the needs of users, stakeholders and society. “A method of payment is not something that becomes the norm once an ideal arrangement is brought into the world,” said Executive Director Uchida Shinichi.

He outlined two goals for the pilot phase. To date, its PoC tests have been largely internal, so it now wants to trial the technical feasibility of integration with banks, intermediary networks and other stakeholders. It intends to test the end-to-end flow of payments. However, in the first instance, there will be no live transactions with retailers, only simulations.

The second goal is to engage with the private sector to improve the digital yen design. This will include establishing a CBDC Forum involving private sector payment providers. As part of this objective, areas it plans to explore include:

  • challenges in integrating a CBDC with external systems
  • offline payments
  • value added services
  • challenges in user touchpoints.

Given the 2011 tsunami, Japan was one of the first countries to investigate the potential for an offline CBDC.

Past digital yen PoCs

Japan’s first CBDC PoC started in April 2021, with the second following a year later. During the first phase, the central bank experimented with the basics of establishing a ledger, issuing a token and making payments. It explored an account-based and a token-based CBDC and wasn’t happy with the latter’s performance.

During the second PoC phase, apart from interacting with intermediaries, the subjects covered included improving the convenience of payments and economic designs. It particularly looked at controlling the amounts of CBDC that users can hold.

Meanwhile, private sector institutions have been preparing for potential Japanese CBDC tests. For example, JCB, the Japanese card payment network, has been working with IDEMIA and Soft Space on some proofs of concept to integrate a CBDC with existing payment cards. IDEMIA recently won an international award for its offline CBDC wallet solution.

Japan’s biggest banks partnered with DeCurret and dozens of other Japanese firms to launch the Digital Currency Forum in 2021, where we believe the central bank was an observer.