Japan digital yen pilot is a go after successful second proof-of-concept

The Bank of Japan (BoJ) has announced the completion of its proof-of-concept (PoC) for its central bank digital currency (CBDC) after nearly a year of research. 

The central bank confirmed the development via an official report, noting that a pilot program is the next phase in the plan to launch a digital yen. Since 2020, the BoJ has completed two PoCs for CBDCs, with the first experimenting with basic ledger functions.

The central bank focused on improving the convenience of payments using the CBDC, coordination among intermediaries, and economic design. Under the ambit of economic design, the banking regulator sought to impose upper limits on CBDC holdings and the number of transactions.

Studies were conducted on the implications of a swing function that would automatically convert holdings in excess into bank deposits while exploring the potential of earning interests on CBDC holdings.

Regarding improving payment convenience, the PoC probed the viability of scheduled and batch remittances for users. The studies also explored the option of pull payments initiated on the instance of the payee with a relative measure of success.

Other areas probed by the PoC include the implication of connecting with external systems, offline payments, and allowing single users to operate multiple CBDC accounts.

The studies were conducted with the hypothesis of five intermediaries and 100,000 users. Under stress testing, the PoC was conducted at 500 transactions per second and 3,000 transactions in high-load conditions.

Although the studies recorded successes, Japan’s central bank stated that it has yet to decide on launching a digital yen but will open a discussion with the public via a CBDC forum before making a decision.

“Whether to issue a CBDC should be decided by discussions among the Japanese public,” the report read. “With a view to facilitating such discussions, the BoJ will continue to make such thorough preparations as conducting technical experiments to respond to changes in circumstances in an appropriate manner.”

An unwavering belief in CBDCs

BoJ Governor Haruhiko Kuroda has recently made public his belief in CBDCs, saying they can co-exist with other forms of payment in the country. Kuroda cited their capabilities for cross-border payment and promoting financial inclusivity to justify their development by the central bank.

“When central bank money, which provides the unit of account, is converted without friction to and from other forms of money, this makes it possible to ensure the uniformity of money,” said Kuroda during his speech on March 28.

The central bank launched its CBDC pilot in April, pledging to collaborate with commercial banks and other technology firms to develop a digital yen blueprint.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook. 

Watch: Blockchain provides perfect foundation for CBDC