The Bank of Japan (BoJ) has announced it will begin testing a central bank digital currency (CBDC) to technically check its feasibility. It is still unclear if the Bank of Japan wants to digitize the money, but it will still catch China, which has already begun testing its own CBDC. For the first time, BoJ announced that it will start the proof-of-concept process with a digital yen; however, it has not yet produced a timeline.
In a report called "CBDC's Technical Barriers", the bank stated that "The feasibility of CBDC will be checked from technical perspectives, will cooperate with other central banks and relevant institutions and will introduce a CBDC."
In February, there were reports that Britain's central banks, the Eurozone, Japan, Canada, and Sweden announced their plan to cooperate to issue digital money.
Big obstacles
In its report, the Bank of Japan addressed two major technical barriers: universal access and flexibility. The first refers to providing accessibility to everyone, including those without a smartphone. Surprisingly, according to Nikkei, only 65% of Japanese people have smartphones as of 2018. "It is important to develop the CBDC so that it can be used by all kinds of users," BoJ said.
"Flexibility" means providing offline availability in the event of a power failure. The bank stressed the importance of accessibility in emergencies such as earthquakes.
Digital yen and blockchain
BoJ is considering whether to use blockchain for CBDC. Although a central system has advantages such as “large capacities and fast processing”, the system can suddenly drop in a single fault. In contrast, DLT-based CBDCs can overcome this and show flexibility, but it may take longer to process because blockchain networks require consensus among multiple validators.
The bank concluded: “Both central and decentralized species have their pros and cons. It is better to adopt the central type in huge transactions in retail use cases in developed countries. The decentralized type can be considered if the amount of transactions is limited and flexibility and priorities are prioritized. ”
