Japan will start a pilot program in April to test the use of a digital yen, its central bank said on Friday, joining a growing number of countries seeking to catch up to front-runner China in launching a central bank digital currency (CBDC).
The widely expected move follows two years of experiments the Bank of Japan (BOJ) has been conducting to decide whether to issue a CBDC. It also comes ahead of BOJ’s leadership transition to academic Kazuo Ueda, who is expected to succeed incumbent Haruhiko Kuroda. Kuroda’s second five-year term ends in April.
The BOJ will establish the Central Bank Digital Currency Forum, which will serve as a platform for discussions with private companies. The central bank does not yet expect actual stores or consumers to take part in the trials.
“We will have employees of the BOJ and private companies participating in program check how it feels to use [the digital yen] on apps and devices,” said Kazushige Kamiyama, head of BOJ’s Payment and Settlement Systems Department.
Work on central bank digital currencies is picking up steam in several countries. U.S. President Joe Biden placed the research and development of a central bank digital currency as one of the top priorities for his administration. The European Central Bank is expected to decide by the end of the year whether to develop a digital euro.
The move comes after more than two years of proof-of-concept experiments by the BoJ around the digital yen, even as China’s digital yuan continues to lead the CBDC race globally, which has extended to more than 105 countries representing over 95% of global GDP.
The move also comes at a time when the BoJ is set for leadership transition, with Kazuo Ueda expected to take over the top job from Haruhiko Kuroda when his second five-year term ends in April. In November 2022, Nikkei reported that, starting in the spring of 2023, the BoJ would work on experiments on a digital yen with three mega-banks and regional banks in the country.
Japan’s first CBDC PoC started in April 2021, with the second following a year later. During the first phase, the central bank experimented with the basics of establishing a ledger, issuing a token and making payments. It explored an account-based and a token-based CBDC and wasn’t happy with the latter’s performance.
During the second PoC phase, apart from interacting with intermediaries, the subjects covered included improving the convenience of payments and economic designs. It particularly looked at controlling the amounts of CBDC that users can hold.
Meanwhile, private sector institutions have been preparing for potential Japanese CBDC tests. For example, JCB, the Japanese card payment network, has been working with IDEMIA and Soft Space on some proofs of concept to integrate a CBDC with existing payment cards. IDEMIA recently won an international award for its offline CBDC wallet solution. Japan’s biggest banks partnered with DeCurret and dozens of other Japanese firms to launch the Digital Currency Forum in 2021, where we believe the central bank was an observer.
