Bank of Japan Will Start Experimenting With the Digital Yen


The Bank of Japan has announced that it will start experimenting with Central Bank Digital Currency (CBDC) to check its viability from a technical perspective.

The BoJ wants to digitize cash but it remains to be seen if Japan can catch up to China which has already started testing CBDCs on its own. This is the first time the BoJ has revealed it will start the Proof of Concept (PoC) process with the digital yen but the bank has yet to reveal a timetable.

In a report called Technical Barriers to CBDCs, the bank said it would “examine the feasibility of CBDCs from a technical perspective, collaborate with other central banks and relevant institutions, and consider introducing CBDCs”.

In February, news emerged that the central banks of the UK, eurozone, Japan, Canada, Sweden, and Switzerland had announced plans to collaborate on researching digital currency issuance.

Big Obstacle

The BoJ thinks there are two main technical hurdles: universal access and resilience. The first refers to providing accessibility for everyone, including those without smartphones. Surprisingly, according to the Nikkei, in 2018, only 65% ​​of Japanese people owned a smartphone. The BoJ said it was “important to develop CBDCs to make them available to a wide range of users”.

‘Resilience’ refers to offline availability in the event of a power outage. The BoJ emphasizes the importance of accessibility in all kinds of environments, even in emergency situations such as earthquakes.

Digital Yen and Blockchain

The BoJ is considering whether to use blockchain for CBDC or not. A centralized system has the benefit of “having large capacity and fast transaction speed”. But the whole system can go down at once due to a single point of failure.

In contrast, DLT-based CBDCs can overcome a single point of failure and demonstrate resilience but take longer to transact because blockchain networks require consensus among multiple validators.

“Both centralized and decentralized types have their pros and cons […] in the case of large-scale transactions for retail use cases in developed countries, it is better to adopt the centralized type […] in cases where the number of transactions is limited and resilience and future possibilities are prioritized, there is room to consider decentralized types. “

BoJ

In April, China’s digital yuan was reportedly tested in the cities of Shenzhen, Chengdu, Suzhou and Xiongan.

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