Bank of Japan Explores Feasibility of CBDC in Pilot Program with Private Businesses

Today, the Bank of Japan (BOJ) announced that it will launch a pilot program this April for the testing of a central bank digital currency (CBDC). The aim of the pilot program is twofold: first, to test the technical feasibility of a CBDC not fully covered by proof-of-concept trials, and second, to utilize the skills and insights of private businesses for designing a CBDC ecosystem.

The BOJ has been conducting proof-of-concept trials to test the technical feasibility of a CBDC since April 2021. The trials confirmed that the processing performance of the CBDC system can be maintained even with additional functions whose implementation is challenging. One such function is to check whether end users’ CBDC holdings and transactions do not exceed the upper limit imposed on each, even when end users hold multiple accounts.

The pilot program will expand the scope of experiments in a phased and planned manner. Simulated transactions will be settled in the test environment, and no actual transactions will take place among retailers and consumers.

The BOJ hopes that the pilot program will lead to improved designs through discussions with private businesses. The bank will establish a CBDC Forum and invite private businesses engaged in retail payments or in related technologies to participate.

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Topics that will be on the agenda currently include:

• measures and potential challenges for connecting the experimental system with external ones,
• alternative data models and architectures for offline payments,
• the optimal design of the CBDC system in providing value-added services,
• and challenges and technologies or functions that could become necessary where a touchpoint with users arises.

The BOJ emphasized that exploring the framework of a CBDC while engaging with the private sector through phased testing and transparent communication is necessary for public acceptance of a CBDC.