The Bank of Japan (BoJ) has announced that it will explore the possibilities of a central bank digital currency (CBDC) starting in early 2023, reports Nikkei.
The central bank stated that the pilot would be conducted in partnership with a trio of mega banks with a keen focus on the issuance and withdrawals of the CBDC. Apart from the mega banks, several regional banks will also play a part in the pilot.
Nikkei reports that the experiment will run for two years, and upon completion, the BoJ will decide in 2026 whether it will officially launch the digital yen. The decision of the central bank to proceed with the experiment provides clarity to interested parties over its stance on CBDCs.
The pilot will explore the technical and legal issues that may crop up around the launch of a national CBDCs. The experiment will also test the durability of the digital yen in unsavory conditions like the absence of the internet and potential attacks from bad actors.
“From the spring of 2023, we will cooperate with private banks and other organizations to verify whether there are any problems with deposits and withdrawals in bank accounts,” said the BoJ’s statement. “[The experiment will] check whether it can operate even in an environment where the Internet does not reach.”
In July, the central bank scrapped a plan to explore the digital yen following a lack of interest from the public. At that time, the BoJ noted widespread apathy towards CBDCs because the country had a deep pool of low-cost digital payment tools available to them.
The potential in cross-border transactions revives interest
The interest in CBDCs barely four months after abandoning efforts may be due to the growing interest in their use in cross-border payments. The Bank for International Settlements (BIS) has been spearheading experiments into their use in multilateral transactions after achieving relative success with its mCBDC pilot.
The mCBDC pilot was a joint effort between the central banks of the United Arab Emirates (UAE), Thailand, China, and Hong Kong, with BIS recording transaction volumes of over 20 million in six weeks of operations.
Further experiments to improve cross-border transactions are being carried out by the BIS in collaboration with the central banks of Israel, Norway, and Singapore.
While China has taken the lead in CBDC development in Asia, Japan’s latest effort is geared towards closing the gap between it and other pioneering countries.
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