Japan to launch CBDC pilot project

The second phase of the PoC was held for a year, starting in April 2022 and closing in March 2023, and it incorporated solutions that are considered functions to complement the basic ledger features tested in the first part of the experiment. 

According to the report published by the Bank of Japan, the focus of the second phase was on testing the needed technology to implement upper limits on CBDC holdings in order to ensure the stability of the overall financial system, in the case of a sudden change from general bank accounts to the CBDC. This included cases such as the ones where a customer had multiple accounts with several intermediaries, as well as the examination of user convenience in initiating and scheduling the payment processes. 

The experiments held in the backend were made with the database language and the ledger design, as well as a flexible-value token model which was trialed. In order for multiple transactions to be handled with the same account in a more efficient and secure manner, an orchestration system was implemented. 

As part of the second phase, the experiments assumed 100,000 customers with five intermediaries, and it researched loads of 500 and 3,000 transactions per second, with a focus and discussion made on the increase of stability. Offline payments were discussed while having the context of fraud management and the protection of client privacy. 

As the PoCs were successful and archived the requirements and the expected results, the Bank of Japan confirmed in the report that it moved on to the scheduling process of the CBDC pilot project. This digital yen solution will be discussed among the Japanese public and it will examine the end-to-end process flow, as well as the improvement of connections with external systems. A final decision on the issuance of a CBDB will be made by 2026, while a forum will be created for gaining insight from private companies and businesses.

Japan’s CBDC pilot programme development

In February 2023, the Bank of Japan revealed its first initiative to launch the pilot programme in order to use the digital yen, after two years of experimenting. The primary aim of the pilot solution was to come up with improved designs following discussions with private businesses and firms. They also revealed at the time that the bank was set to conduct simulated transactions with private financial institutions in a test environment, with the note that it did not plan to conduct actual transactions or payments among retailers and customers. 

The plan of the CBDC was announced in November 2022, when BoJ partnered with three megabanks and regional banks for conducting the digital yen issuance pilot, which was set to start in spring 2023.