Japan launches digital yen pilot project after successful proof-of-concept

The Bank of Japan (BOJ) has announced the findings of the second phase of its central bank digital currency (CBDC) proof-of-concept (PoC) experiment. The results confirmed that the CBDC pilot project launched on schedule in April. The second-phase PoC ran for a year, from April 2022 to March 2023, and tested functions to complement the basic ledger functions that were tested in the first yearlong experiment.

The BOJ report revealed that the second phase tested technology to implement upper limits on CBDC holdings as “safeguards ensuring the stability of the financial system” in case of a sudden shift from bank accounts to the CBDC. The experiment also examined user convenience in initiating and scheduling payments.

Experiments were also made with the database language and ledger design, and a flexible-value token model was trialed. An orchestration system was implemented to handle multiple transactions with the same account more quickly.

The experiment assumed 100,000 users with five intermediaries and looked at loads of 500 and 3,000 transactions per second, with a discussion of increasing scalability. Privacy was considered throughout but not discussed at length. Offline payments were discussed in the context of fraud prevention and preservation of privacy.

The PoCs were declared successful in achieving their desired results, and the report confirmed that the BOJ had moved on to its scheduled CBDC pilot project. The pilot will examine “end-to-end process flow” and further connections with external systems.

A CBDC Forum will be created to gain insight from private businesses. The BOJ has stated that it will make a final decision on the issuance of a CBDC by 2026.

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