The Bank of Japan, which is the nation’s central bank, announced that they will be testing a CBDC (Central Bank Digital Currency). The goal is to assess whether a digital yen is technically feasible.
The Bank of Japan’s aim is to digitize the nation’s currency. Neighboring countries such as China have already rolled out their own CBDC, with tests already being performed in Chengdu, Suzhou, Xiongan, and Shenzhen.
Central Banks in Sweden, Switzerland, Britain, and Europe previously announced that they would work alongside Japan in researching digital currencies. The Bank of Japan will begin the rollout process with a PoC (Proof of Concept), although the timetable has not been released.
The Bank Stated that it would, “check the feasibility of CBDC from technical perspectives, collaborate with other central banks and relevant institutions, and consider introducing a CBDC”.
Given that only 65% of the Japanese population has smartphones, a Digital Yen could face challenges pertaining to universal access. In addition, the Bank of Japan will need to ensure the digital currency is resilient, which means it will be operational in the event of power or network failures and natural disasters.
Whether the Bank of Japan opts to use the blockchain for its CBDC remains to be seen. While centralized systems offer larger capacities and quicker transaction speeds, the whole system can temporarily collapse if it fails at a single point. At the same time, distributed ledger technologies like bitcoin solve these issues, but can be much slower.
The Bank of Japan noted, “Both centralized and decentralized types have pros and cons […] in the case of massive transactions for retail use cases in advanced countries, it is better to adopt the centralized type […] in the case where the amount of transaction is limited and resilience and future possibility are prioritized, there is room to consider the decentralized type.”