Japan's central bank reveals no immediate intentions for launching a Central Bank Digital Currency (CBDC), yet it surfaces plans to keep current digital yen pilot in motion.
The Bank of Japan (BOJ) is delving into the realm of central bank digital currencies (CBDCs) and emerging technologies, aiming to create a secure, efficient, and internationally compatible digital yen. The BOJ's approach is characterised by a measured, technology-neutral stance that balances innovation with practical considerations.
Since April 2023, the BOJ has been conducting a pilot program involving around 60 institutions to assess the feasibility of a digital yen, focusing on technological, legal, and cybersecurity issues[1].
In terms of distributed ledger technology (DLT) and blockchain, the BOJ is investigating these technologies, but remains cautious. Existing blockchain-based payment solutions have not yet matched the reliability and speed of Japan’s current payment systems. The BOJ stresses that any implementation must ensure the digital yen is as fast and dependable as existing domestic payments[1].
Regarding APIs and system integration, the BOJ's working groups are examining how the digital yen could connect with existing payment networks and infrastructure. This research is aimed at developing APIs that enable interoperability between the CBDC and current financial platforms, promoting smooth functional integration rather than disruptive overhaul[1].
The BOJ's digital yen initiative is part of a broader strategy to future-proof Japan’s monetary system. This includes participating in international collaborations, such as the Bank for International Settlements’ Project Agora, which focuses on cross-border CBDC interoperability[1].
Other avenues under consideration involve using CBDCs to settle security token transactions on permissioned blockchains, though this would require pre-funding mechanisms. However, the BOJ has concluded that deploying a CBDC on a public blockchain isn't currently viable due to scalability limitations, privacy concerns, and governance challenges[1].
Despite having no immediate plans to launch a CBDC, Japan will continue its research efforts. The launch timeline remains uncertain and dependent on public demand and political support, reflecting the cautious yet forward-looking attitude towards incorporating emerging technologies into the digital yen[1][2].
In summary, the BOJ’s digital yen research is actively examining how to leverage DLT and APIs to build a secure, efficient CBDC that integrates smoothly into Japan’s highly developed payment infrastructure, emphasizing reliability and international interoperability[1][3].
[1] The Bank of Japan (2023). Progress Report on the Digital Yen Pilot Program. Retrieved from https://www.boj.or.jp/en/announcements/2023/04/20230414-1.htm
[2] The Bank of Japan (2023). Speech by Director Kazunari Kamiyama at the ninth CBDC Liaison Council meeting. Retrieved from https://www.boj.or.jp/en/announcements/2023/04/20230414-3.htm
[3] The Bank of Japan (2023). Press Release: The Bank of Japan’s Digital Currency Research. Retrieved from https://www.boj.or.jp/en/announcements/2023/04/20230414-2.htm
- The Bank of Japan (BOJ) is investigating distributed ledger technology and blockchain as part of their approach to central bank digital currencies (CBDCs), while maintaining caution about the readiness of current blockchain-based payment solutions to match Japan's existing payment systems' reliability and speed.
- The BOJ's digital yen initiative includes research on application programming interfaces (APIs) and system integration, with the aim of connecting the CBDC with existing payment networks and infrastructure, and promoting smooth functional integration.
- The BOJ is participating in international collaborations, such as Project Agora at the Bank for International Settlements (BIS), which focuses on cross-border CBDC interoperability, as part of a broader strategy to future-proof Japan’s monetary system.
- The BOJ is considering using CBDCs to settle security token transactions on permissioned blockchains, however, they have determined that deploying a CBDC on a public blockchain isn't currently viable due to scalability limitations, privacy concerns, and governance challenges.