The Bank of Japan has announced plans to experiment with blockchain technology for settling reserve deposits held by financial institutions at the central bank.
Following this announcement, the Bank of Japan (BOJ) has announced it will conduct experiments to explore the use of blockchain technology for settling deposits that financial institutions hold in reserve accounts at the central bank, as part of a broader effort to evaluate distributed ledger infrastructure within the existing financial system.
The announcement was made in a speech titled 'The New Financial Ecosystem and the Role of Central Banks'. The experiments will sit within an ongoing BOJ 'sandbox project' designed to assess whether central bank money can support a wider range of blockchain-based settlements.
Scope and technical direction
According to Reuters, the BOJ intends to examine connection methods between blockchain infrastructure and existing settlement systems, with specific use cases under consideration including domestic interbank settlement and securities settlement. The central bank will work with external experts as the project progresses.
The BOJ manages intrabank settlement, liquidity, and monetary policy through commercial banks' reserve accounts. Applying blockchain to these reserve settlements could, in principle, enable continuous settlement around the clock and reduce the risk of settlement gridlock during periods of financial stress.
The Governor also referenced the convergence of blockchain with artificial intelligence, noting that AI-enabled data processing, combined with distributed ledger technology, may open further avenues for improving financial services. However, no specific implementations arising from that combination were outlined.
It was reaffirmed that the BOJ's view that central bank money, comprising cash and current account deposits, serves as the foundational 'anchor of trust' across the payments ecosystem, functioning as the most liquid and secure settlement asset regardless of how payment instruments evolve.
CBDC and wholesale settlement context
The BOJ's exploration of blockchain for reserve settlement sits alongside its longer-running work on central bank digital currencies (CBDCs). The central bank began CBDC experiments in 2021 and launched a retail CBDC pilot programme in 2023, through which a digital currency would be distributed via private banks or payment firms. No decision on retail CBDC issuance has been taken, and some analysts have questioned the necessity given Japan's established private digital payment infrastructure and continued public preference for cash.
In parallel, the BOJ has maintained dialogue with private financial institutions on the potential use of wholesale CBDC to streamline interbank settlements. It has also joined an international experiment exploring a mechanism by which central banks could issue central bank money as tokenised deposits on blockchains — an initiative aimed at improving the efficiency of cross-border payments.
The latest announcement reflects a gradual broadening of the BOJ's distributed ledger ambitions, moving from retail CBDC testing towards infrastructure-level experimentation with reserve settlement, an area that, if developed, is expected to sit at the core of Japan's financial plumbing.
