October 9, 2020 | AtoZ Markets – The Bank of Japan (BoJ) announced on Friday that it has drafted a plan for a central bank digital currency (CBDC). The bank says it will start testing ‘as early as possible’ at the beginning of FY 2021, which starts in April.
The Bank, however, will first test the technical feasibility of the core functions and features required for CBDC through a Proof of Concept (PoC) in 2021 as well. It will then consider the need for a pilot program if necessary.
BoJ to begin the CBDC experiment in 3 phases
The BoJ will continue to make necessary preparations to respond to changes in circumstances in an appropriate manner. The currently planned next steps are as follows.
1. PoC Phase 1
The Bank will develop a test environment for the CBDC system and conduct experiments on the basic functions that are core to CBDC as a payment instrument -- namely, issuance, distribution, and redemption.
2. PoC Phase 2
The Bank will implement additional functions of CBDC in the test environment developed in Phase 1 and test their feasibility.
3. Pilot program
Based on the PoC, if the Bank judges it necessary to step things up further, it will also consider a pilot program that involves PSPs and end-users.
Along with PoC, the following four will be considered.
(1) Coordination and division of roles between the central bank and private businesses
(2) Concept of CBDC issuance/holding amount restrictions and interest rates
(3) Ensuring privacy and handling of user information
(4) For digital currency How to standardize related information technology
The Bank of Japan said:
"When considering the introduction of CBDC, it is necessary to take a wide range of large-scale efforts, not limited to the system and institutional aspects, banks, non-bank payment companies, IT and law. It is important to cooperate with experts and relevant authorities and utilize various findings for future studies. "
CBDC will complement cash economy
The BOJ also adds that it would be desirable for the CBDC to be used for cross-border payments and not only for domestic payments. Such CBDCs will complement, not replace, cash, and focus on making payment and settlement systems more convenient, BoJ said.
Japan has been cautious about being hasty on digital currencies due to the social disruptions it could cause in a country that has the world’s most cash-loving population.
However, China’s steady progress toward issuing digital currency has prompted the government to reconsider, and pledge in this year’s policy platform to look more closely at the idea.
The BOJ’s recent efforts to catch up include creating a new team focusing on issuing digital currency and conducting joint research with other central banks.
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