The Bank of Japan has released a 31-page report on the results and findings of its Central Bank Digital Currency (CBDC) experiment, entitled "Proof of Concept Phase 2". The report was initially published in Japanese last month, with the English version's recent release sparking renewed interest among commentators. The report provides insights into the Bank of Japan's progress in exploring the idea and logistics of the digital yen, but does not make a final decision regarding its implementation.
The report highlights the Bank of Japan's interest in distributed ledger technology, including blockchain, for integrating a digital yen CBDC. The report references overseas CBDC experiments where collaborations between CBDC systems and blockchain platforms have been observed. The Bank of Japan envisions a similar approach where assets exchanged between the CBDC and blockchain platforms would initially be secured in their respective systems. The report also emphasises the importance of being prepared for upcoming changes and disruptions in the global financial landscape, with additional reference to activities around the world.
The proof of concept for the yen CBDC, which verified the technical feasibility of the CBDC, was originally completed in 2022. The 'pilot' phase of the experiment has commenced as of April 2023 according to the report. This means that Japan joins the 17 other countries around the world currently piloting a CBDC (including Australia).
Japan's pilot experiment will involve various aspects such as testing end-to-end processing flow, identifying issues and countermeasures for connecting with external systems, and exploring ideas and necessary measures identified during the 2022 proof of concept phase. Japan intends to establish the 'CBDC Forum' body, which is intended to facilitate the Bank of Japan gathering insights from private businesses involved in retail payments. The report highlights the importance of industry discourse, stating that the CBDC Forum will enrich the discussion around the potential introduction of a CBDC and that public discussions will play a crucial role in determining the future introduction of a yen CBDC.
The Bank of Japan's report demonstrates the country's commitment to exploring the potential of a CBDC and conducting a thorough assessment of technical and operational aspects before making conclusive decisions. By remaining at the forefront of innovation, the Bank of Japan aims to join other jurisdictions around the world in being prepared for a future that may include digital sovereign currencies.