BOJ to Commence CBDC Testing as Early as April 2021

A proof of concept will take place over two phases, followed by a possible pilot programme involving private payment service providers and end-users. 

The BOJ (Bank of Japan) has announced it will begin testing a general purpose CBDC (central bank digital currency) as early as April 2021.

“While the Bank of Japan currently has no plan to issue CBDC, from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, the Bank considers it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner,” the central bank said in a statement.

If the BOJ were to issue a CBDC, it would require one with the following core features:

  • issued indirectly through intermediaries
  • universal access to avoid excluding some individuals, devices or cards
  • enhanced security to prevent illicit activities
  • resilience to system and network failures
  • instant payment capabilities with settlement finality similar to cash
  • interoperability with other payment and settlement systems

To prepare for the potential issuance of a CBDC, the BOJ will first test the technical feasibility of the core functions and features required through a proof of concept (POC), starting in early fiscal year 2021.

The first phase of the POC will test basic functions core to CBDCs, such as issuance, distribution and redemption. The second phase will test additional functions, taking into account the core features the BOJ requires for a CBDC.

Based on the POC tests, and if the BOJ deems it necessary to “step things up further”, a pilot programme will follow to trial the actual design and functions of CBDC with private payment service providers and end-users.

In tandem with the experiments, the BOJ will explore cooperation and role-sharing arrangements with payment service providers, the economic design of the CBDC including issuance/holding limits, privacy protection and handling of end-user information, and standardisation of IT relating to the digital currency.

The BOJ will also continue to coordinate with other central banks and use any information obtained to deepen its own understanding.

The BOJ was one of seven central banks which has been working with the BIS (Bank for International Settlements) to share and develop their analysis of a general purpose CBDC as a digital equivalent of cash.

On Friday, the group published a report identifying the foundational principles necessary for any publicly available CBDC.

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