As central banks around the world have been grappling with the pros and cons of creating their own digital currencies the Bank of Japan (BoJ) has announced that it will begin central bank digital currency (CBDC) experiments early in 2021 although it states that it still does not have any plans to issue its own digital yen.
The BoJ experiment has gathered momentum as we see the emergence of private sector alternatives such as the Facebook led Libra project and the advancement of China’s digital yuan.
Notwithstanding China’s first mover status, Japan is taking a conservative approach to the issue, setting out three stages:
Phase 1: During 2021 BoJ will develop a test environment for a CBDC system and conduct experiments on the basic core functions such as issuance, distribution and redemption.
Phase 2: This phase will see the implementation of additional functions in the test environment, with technical experiments on specific functions required for CBDC.
Phase 3: Then, if the Bank judges it necessary to step things up further, it will consider a pilot involving PSPs and end users.
The bank stresses that any CBDC would not be a replacement for cash.
We’re looking into CBDCs to enhance our settlement system, not to use it as a tool for monetary policy.
Kazushige Kamiyama, head, payments and settlement