The possibility of a surge in public demand for central bank digital currency (CBDC) going forward, considering the rapid development of technological innovation. The Bank of Japan earlier had no plan to issue CBDC, from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, the Bank considered it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner.
With this in mind, the Bank decided that it would publish its approach to “general purpose”, CBDC intended for a wide range of end users, including individuals and firms. There are two main variants of CBDC: “wholesale” CBDC and “general purpose” CBDC. Expected functions and roles of general purpose CBDC were highlighted as introducing a payment instrument alongside cash, supporting private payment services and developing payment and settlement systems suitable for a digital society.
Recently, the Bank of Japan (BOJ) released the results of the second phase of its central bank digital Currency (CBDC) proof-of-concept (POC) experiment and confirmed that its CBDC pilot project launched on schedule in April. The second phase of POC ran for a year, from April 2022 to March 2023, and considered functions to complement the basic ledger functions tested in the first year-long experiment.
In Phase 2, the bank evaluated the processing performance and technical feasibility of additional
functions. Further, it highlighted the possibility of utilizing new technologies that had not been examined in Phase 1, such as data models and databases, which were also evaluated.
The report examined the additional functions in terms of preempting a sudden shift from bank deposits to CBDC as a safeguard, improving user convenience such as scheduled and batch remittance and pull payments, and enabling coordination among intermediaries and connection with external systems.
The evaluation results underlined the scalability and reliability required for social implementation it also indicates the need for further considerations and solutions to achieve the implementation. While evaluating new technologies, the research underscored that the performance advantage of the token-based data model for ledgers in terms of their ability to be processed in parallel might be more easily utilized in the flexible-value approach than the fixed-value approach for the system architectures
considered in this PoC.
Further, NoSQL databases have the potential for use as databases for ledgers and non-ledger CBDC systems from the perspective of performance improvement, it was confirmed that there were differences in the degree of potential use depending on the assumed operational and other requirements and that this topic needed to be explored from perspectives other than performance.
The PoCs, through which the BOJ has confirmed the technical feasibility of the basic functions of
a CBDC was completed in FY2022, with the achievement of its desired objectives. In April 2023 the bank proceeded with the pilot program. In the pilot program, the end-to-end process flow will be tested, the measures and potential challenges for connection with external systems will be explored, and considerations and solutions indicated as necessary in the PoCs will also be explored.
Further, a CBDC Forum will be established in Japan to proceed with institutional arrangements for CBDC appropriately, and ideas and insights set out by private businesses related to retail payments will be drawn upon to deepen the study.