The Bank of Japan (BOJ), the central bank of Japan, has begun testing on a central bank-issued digital currency (CBDC). The authority released this news through an official announcement on April 5, noting that it had completed the necessary steps to begin experimenting on the technical feasibility of the main features and functions of a CBDC. The bank reportedly started the first phase of the proof of concept (PoC) today.
According to the announcement, Phase 1 PoC testing will see BOJ create a litter box for the CBDC system. The bank will then run experiments on the rudimentary functions related to using a CBDC as a payment instrument. These include issuance, distribution, and redemption. This test phase will reportedly be active for one year, until March 2022.
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After the first phase is completed, the bank will decide if it is necessary to continue testing the use cases of a CBDC. If the BOJ finds additional experimentation relevant, it will initiate the second testing phase, which will reportedly delve into the operation of a CBDC. These include deciding the amount of CBDC a bank can have. In addition, this phase could include a pilot program that includes payment service providers (PSPs) and end users.
Japan’s Vague Stance on CBDC
This news comes on the heels of a previous announcement in which the BOJ noted that it would only consider launching a CBDC when completely necessary.
In the post, the bank said it does not expect cash circulation to drop significantly at this time. However, if such a scenario presents itself and private digital currencies do not act as an effective cash alternative, the bank plans to issue a general purpose CBDC. This CBDC would act as a payment instrument alongside the fiat currencies. BOJ concluded by saying that as long as there is public demand for cash, it will maintain its commitment to supply it.
However, BOJ Executive Director Uchida Shinichi believes these experiments are important. In a press release last month, he said that while the bank has not yet planned to issue a CBDC, the experiments are a necessary step.
Shinichi added that the future of payment and settlement systems will depend on blockchain technology. Since the financial system will structure its networks around the blockchain, which is secure and convenient, he said the BOJ is not sure whether the issuance of a CBDC will be relevant or not.
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