Central bank digital currency (CBDC) experiment progresses smoothly, Bank of Japan decides to launch CBDC trial program in April.

Bank of Japan board member Uchida Shinichi stated in his opening speech at the Central Bank Digital Currency (CBDC) Coordinating Committee that the Bank of Japan will begin a trial of its CBDC in April.

Progress of Central Bank Digital Currency (CBDC)

Director Uchida elaborated on the process and progress of the Bank of Japan's CBDC initiative in his speech:

• In October 2020, the Bank of Japan released the "Approach to Central Bank Digital Currency" and conducted the first step of CBDC experiments, Concept Verification PoC, to test the technical feasibility of core functions and features required for CBDC.
• In April 2021, the first stage of PoC began, where the Bank of Japan constructed an experimental environment centered around a CBDC ledger, confirming the basic transactions related to CBDC such as issuance, payment, and transfer, could achieve the processing performance necessary for frequent, small-scale retail payments.
• In April 2022, the second stage of PoC began, implementing more complex additional functions of CBDC based on the first stage. Although this stage was initially planned to continue until March of this year, the Bank of Japan has confirmed that the CBDC system can also handle these challenging functions. One of them is the system's ability to check the CBDC holdings and transactions of users with multiple accounts without exceeding the limit.

Within the Central Bank Digital Currency Coordination Committee, members discussed various issues, including the future of payment and settlement systems suitable for a digital society, while also sharing details and the latest progress of the PoC. Subsequently, the Bank of Japan decided to launch a pilot program in April of this year.

Purpose of the Pilot Program

There are two purposes for the pilot program:

• To test the technical feasibility not fully covered by the previous PoC, including testing end-to-end processes through connections such as intermediaries and networks, outlining measures and potential challenges of connecting the experimental system with external systems.
• To utilize the technical and operational skills and insights of private companies in designing the social implementation of the CBDC ecosystem in possible scenarios. The current agenda includes measures and potential challenges of connecting the experimental system with external systems, alternative data models and architectures for offline payments, optimized design of the CBDC system in providing value-added services, and potential challenges it may bring.

The Bank of Japan will also establish a CBDC Forum, inviting private enterprises engaged in retail payments or related technologies to participate, and will continue to monitor discussions on CBDC, aiming to bring the future payment landscape into a new phase that is accepted by the broader society and users.

Director Uchida did not specify the timeline for CBDC issuance; however, according to previous reports, the Bank of Japan has coordinated with three major banks and regional banks to conduct demonstration experiments for issuing a digital yen. Japan plans to conduct experiments for approximately two years and decide whether to issue its CBDC in 2026.