As central bank digital currencies gain momentum across Asia, Japan is now also revving up for the race.
This spring, Japan’s central bank — even as it expresses uncertainty over whether Japan really needs a CBDC — will start doing experiments on a digital yen.
“Central banks share the view that it is not an appropriate policy response to start considering CBDC only when the need to issue CBDC arises in the future,” said Bank of Japan governor Haruhiko Kuroda, in a speech at the FIN/SUM 2021 conference this week.
While the Bank of Japan currently has no plan to issue CBDC, Japan also believes it would be wise to be ready. “From the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, we consider it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner,” Kuroda said.
Interest in CBDCs has been rising around the world, with central banks moving from exploratory research to experimentation or proofs of concept.
A recent survey of 65 central banks conducted by the Bank for International Settlements found that 86% were exploring CBDC issuance and about 60% were conducting a proof of concept.
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“As for the Bank [of Japan], amid significant changes that are occurring with the advent of the digital society, we will take this opportunity to carefully consider the way in which we should provide central bank money,” Kuroda said.
Last October, the Bank of Japan published its approach to CBDC and announced its intention to test the feasibility of the core functions of “general purpose” CBDC — intended for individuals and firms — through a proof of concept.
As part of phase one of its proof of concept starting this spring, the Bank of Japan will develop a test environment for the CBDC system and conduct experiments on the basic functions that are core to CBDC as a payment instrument — issuance, distribution and redemption.
Japan has also been conducting joint research with the European Central Bank on distributed ledger technology (DLT) for financial market infrastructures in Project Stella since 2016.
Project Stella has published four phases of its DLT-related research since 2017: the processing of large-value payments, an investigation of securities delivery versus payment, a study of cross-border payments, and an exploration of balancing confidentiality and auditability in a DLT environment.
CBDCs gaining momentum in Asia
Elsewhere in Asia, work on CBDCs — both retail CBDCs for use by the general public and wholesale digital currencies for use in financial markets — has been gaining rapid momentum.
China, by all accounts, is the farthest ahead. The nation has been conducting mass and ever-larger trials of its DCEP digital yuan for retail use by the general public. Though an official launch date has not yet been announced, many analysts believe it could be imminent.
In South Korea, Shinhan Bank, one of the oldest banks in the country, recently announced that it has developed a pilot of a blockchain-based CBDC platform for retail use with conglomerate LG Corp. in preparation for a potential Bank of Korea-issued CBDC.
Last month, the central banks of China, Hong Kong, Thailand and the United Arab Emirates announced that they were collaborating on a “Multiple CBDC Bridge” project for cross-border payments, an expansion of an earlier Project Inthanon-LionRock wholesale CBDC initiative between Thailand and Hong Kong.
Earlier this month, the Bank of Thailand (BoT) announced the successful completion of its project exploring the use of CBDC for payment and settlement by the corporate sector. The BoT intends to focus on the research and development of a retail CBDC in 2021-2022.
The Monetary Authority of Singapore announced last year the conclusion of the fifth and final phase of its multi-year multi-phase Project Ubin project initiated in 2016 that explored the use of blockchain and DLT for clearing and settlement of payments and securities.
