The Bank of Japan (BOJ), Japan’s central bank, has started running tests on a central bank-issued digital currency (CBDC). The authority unveiled this news through an official announcement on April 5, noting that it had completed the necessary steps to begin experimenting on the technical practicability of the main features and functions of a CBDC. Reportedly, the bank initiated the first phase of the Proof of Concept (PoC) test today.
According to the announcement, the PoC phase 1 trials will see BOJ create a sandbox for the CBDC system. The bank will then run experiments of the rudimentary functions pertaining to the use of a CBDC as a payment instrument. These include issuance, distribution, and redemption. Reportedly, this test phase will be active for one year, ending March 2022.
Upon the completion of the first phase, the bank will then decide whether it is necessary to continue testing the use cases of a CBDC. Should BOJ find further experimentation relevant, it will initiate the second phase of testing, which will reportedly dive deeper into the functioning of a CBDC. These include deciding the amount of CBDC a bank can hold. Furthermore, this phase might include a pilot program that comprises payment service providers (PSPs) and end-users.
Japan’s vague stance on CBDC
This news comes on the heels of a previous announcement in which BOJ noted that it would only consider launching a CBDC when it is completely necessary.
In the publication, the bank said that it does not expect the cash circulation to plunge significantly at the moment. However, should such a scenario present itself and private digital currencies fail to act as an effective cash alternative, the bank plans to issue a
