Today theĀ NikkeiĀ reported that theĀ Bank of JapanĀ (BoJ) is coordinating with the countryās three largest banks, MUFG, SMBC and Mizuho to participate in retail central bank digital currency (CBDC) experiments. Regional banks and fintechs will also be involved in theĀ digital yenĀ trials, which will start in the Spring of 2023.
Based on our knowledge of the central bankās roadmap, we believe this is still part of the second phase of Proofs of Concept (PoC).Ā Phase 2 startedĀ in April 2022 and was expected to continue for at least a year. One of the topics is coordination with intermediaries.
TheĀ Bank of JapanĀ has not yet made a decision to proceed with a CBDC. Thereās expected to be a pilot for two years or more, with a decision around 2026. It has previously been stated that there needs to be a national consensus to proceedĀ interpreted as a referendum.
Experiments with intermediaries will focus on moving money between bank accounts and digital currency, and it will also includeĀ offline experiments. Fintechs will get involved in security and identity verification, and the central bank expects private firms to second staff to the BoJ.
Itās likely that the CBDC will be account based. In the first phase of PoC research, the central bank experimented with account-based and token- based CBDC and wasnāt happy with the latterās performance.
In the current second PoC phase, apart from interacting with intermediaries, the topic areas are improving the convenience of payments and economic designs. For example, the BoJ is looking into limiting CBDC holdings, controlling transaction amounts, and considering whether a CBDC should be interest-bearing.
Japan was one of the earlier CBDC explorers, with several rounds of research before Facebook unveiled Libra. In October 2020, it was one ofĀ seven central banksĀ to publish a joint paper with the BIS on digital currency. Also in 2020, the Bank of Japan published a report on usingĀ CBDC offline.