After months of conducting experiments on Central Bank Digital Currency (CBDC), the Bank of Japan has announced that it will be launching a pilot program for the digital yen in April 2023.
This move is in line with “The Bank of Japan’s Approach to Central Bank Digital Currency,” released in October 2020, and will involve testing the end-to-end process flow and exploring potential challenges for connecting the experimental system with external ones.
Japan’s plans for the deployment
The Bank will complete the Proof of Concepts (PoCs) in March 2023, as initially scheduled. In the pilot program, a system for experiments will be developed, which will involve a central system, intermediary network systems, intermediary systems, and endpoint devices configured in an integrated manner.
While actual transactions are not assumed to take place among retailers and consumers in the program, the Bank will test the technical feasibility of the basic functions of a CBDC.
When it comes to retail payments, the Bank of Japan wants to debate and study a broad variety of subjects with private enterprises; therefore, they’re launching a pilot program and a CBDC Forum at the same time.
The Bank plans to hold information sessions in March to explain the selection process and requirements for participating in the CBDC Forum.
The goal is to proceed with institutional arrangements for CBDC in an appropriate manner, and to establish a platform for discussions among the Japanese public.
To facilitate discussions, the Bank of Japan will establish working groups to take into account linkages among the topics in consideration.
The CBDC Forum will discuss and explore alternative data models (e.g., token-based) to account-based ones and offline payments, among other topics.
Bank of Japan to select participants for CBDC forum
Private businesses with an interest in overlay services on top of a CBDC as a public good will exchange views from the perspective of “the business and technology of CBDC” to explore design requirements for the CBDC system in facilitating overlay services.
The Bank of Japan will investigate the technical feasibility of challenges and technologies or functions, such as privacy protection and universal design, that could become necessary.
In fiscal 2023, the Bank of Japan will select participants for the CBDC Forum and contractors for developing the experimental system, proceeding with discussions and explorations with the participants and the development of the system accordingly. The Bank will issue public updates on these matters promptly.
This move is significant, as Japan is now joining a growing number of countries that are experimenting with CBDCs. The launch of the digital yen could have far-reaching implications for the country’s economy and the global financial system.
While the Bank of Japan is taking a cautious approach to the launch of the digital yen, it is clear that this is a major step forward for the country in the world of digital currencies.
The CBDC Forum and pilot program represent important steps towards the adoption of CBDCs in the country and could set a precedent for other countries looking to develop their own digital currencies.
The Bank of Japan’s commitment to transparency and collaboration with private businesses will be crucial in ensuring the successful launch of the digital yen and promoting its widespread adoption.