Japan is poised to catch up with nations like India, China and Russia in accelerating the development and testing of its central bank digital currency (CBDC). The Asian nation will pilot its digital currency starting in April. The development was announced on Friday, February 17 by Shinichi Uchida, Executive Director of the Bank of Japan (BoJ). In its political phase, the digital yen will be tested for its technical feasibility for commercial purposes.
Private companies are admitted by the BoJ to participate in testing the digital JPY. The focus is on analyzing and justifying the basics of the Proof-of-Concept (PoC) for this CBDCwhich has been tested in Japan since April 2021.
“The pilot program has two objectives: first, to test the technical feasibility, which is not fully covered by the PoCs, and second, to leverage the skills and insights of private companies in terms of technology and operations to create a CBDC ecosystem in the possible shape event of social implementation,” Uchida wrote in a blog entry.
Japan will develop a working financial network consisting of a core system, intermediate network systems, and endpoint devices—all configured in an integrated manner to test end-to-end speed and efficiency digital currency.
The BoJ is looking for touch points in its CBDC that could be improved.
“Topics on the agenda are currently measures and possible challenges for connecting the experimental system to external, alternative data models and architectures for offline payments, the optimal design of the CBDC system when providing value-added services, and challenges and technologies or functions for this could be there become necessary where there is a point of contact with users,” noted Uchida.
The BoJ will set up a CBDC forum to serve as a platform for industry insiders to submit their observations and suggestions.
Japan could see wider adoption of its digital JPY by 2026. Before that, the BoJ wants to check whether the CBDC works efficiently in a disaster situation or without an internet connection.
A CBDC or a central bank digital currency built on blockchain works like cryptocurrenciesbut are issued and regulated by the central bank.
CBDCs are being designed by several nations around the world with the aim of complementing rather than replacing current forms of money and offering users an additional payment option.
