Japan has announced that it will join several other countries in exploring the possibility of introducing a digital currency. The country’s central bank, the Bank of Japan (BoJ), has revealed that it will launch a pilot program in April to test a “digital yen.” This comes more than two years after the BoJ’s initial foray into the digital currency space, with the launch of a central bank digital currency (CBDC) proof of concept experiment in October 2020.
The CBDC PoC experiment began with the first phase in April 2021, which aimed to test the basic transactions of CBDC, including issuance, payout, and transfer. The second phase, which started a year later and is expected to end in March 2022, focuses on testing additional functions related to the core performance of CBCD.
According to Uchida Shinichi, the executive director of the Bank of Japan, the pilot program set to launch in April is intended to “test the technical feasibility not fully covered by the PoCs.” In order to develop a CBDC ecosystem in the case of social implementation, it also seeks to use the talent and knowledge of private firms in terms of technology and operation.
In other words, the pilot program will be an opportunity to test the digital yen’s functionality and explore how private businesses can collaborate with the central bank to create a CBDC ecosystem that could be implemented in the future.
Uchida stated that the pilot program aims to create an integrated system for experiments, involving a central system, intermediary network systems, intermediary systems, and endpoint devices.
During the pilot stage, simulated transactions will take place as no actual transactions are currently occurring between retailers and consumers, as per the Central Bank. Uchida also mentioned that Japan plans to hold a CBDC forum, inviting private businesses involved in retail payments or related technologies to participate in the discussions
Uchida provided a comprehensive explanation of the proposed pilot tests’ execution process. According to him, the Bank of Japan will adopt an incremental approach, where narrower objectives will be proposed first, and the program’s scope will be expanded later.
Furthermore, he made it clear that transactions between retailers and consumers would not be included in this new pilot, with simulated transactions being the only settlements during the test.
The launch of this testing phase is not a shock, as Nikkei had reported in November. The outlet had stated that the tests would last for two years and focus on evaluating the system’s functionality in offline environments.
Despite the pilot’s commencement, it is still uncertain whether the Bank of Japan will issue a digital yen. In March of last year, Governor Haruhiko Kuroda stated that there were no current plans to issue a CBDC.
The Adoption of Pilot programs by other countries
A report by Atlantic Council indicates that as of December of the previous year, 114 countries were actively considering the implementation of a CBDC, a significant increase from the 35 countries in May 2020. This result follows the partnership formed in October between the Bank of International Settlements (BIS) and four central banks.
Except for China, Hong Kong, and Thailand, over 20 countries, including Australia, India, Japan, South Korea, Singapore, Brazil, Malaysia, South Africa, and Ghana, are set to either initiate or continue with pilot programs in 2023.
Japan’s announcement to launch a pilot program to test a digital yen marks a significant step forward in the country’s exploration of a central bank digital currency. The program not only aims to test the technical feasibility of the digital currency but also seeks to utilize the skills and insights of private businesses to create a CBDC ecosystem that could be implemented in the future
Ken Emmanuel is a Blockchain Content writer, a Web3 Enthusiast and a Social Media Management Strategist, he likes writing educative contents to help people gain more knowledge and get inspired. The growth of any organization he work with is always his priority. He is a Geographer by profession and loves reading.