The Bank of Japan (BoJ) has just announced that it will begin experimenting with a Digital Yen, its own Central Bank Digital Currency (CBDC) to test its technical application and feasibility.<\/p>\n\n\n\n
Although no timetable for Japan\u2019s CBDC experimentation has been revealed, this is the first announcement by the BoJ that it will commence a Proof of Concept (PoC) process with the Digital Yen.<\/p>\n\n\n\n
The BoJ published a report called Technical Hurdles for CBDC<\/a>, in which the bank disclosed that it would check the feasibility of CBDC from a technical perspective while continuing to collaborate with other central banks that are also in development.<\/p>\n\n\n\n Two Technical Issues Identified<\/strong><\/p>\n\n\n\n According to the report, the BoJ identified two major technical issues to overcome with its CBDC. universal access and resilience.<\/p>\n\n\n\n One is universal access, which as the name implies is to grant access to everyone including those who do not use smartphones. Surprisingly, in a country known for cutting edge tech, Japan\u2019s smartphone penetration<\/a> sits only at around 75% today, according to the Communications and Information Network Association of Japan.<\/p>\n\n\n\n The second issue referred to in the BoJ report is called \u201cResilience\u201d\u2014referring to accessibility to the Digital Yen offline in the event of a power outage or natural disaster.<\/p>\n\n\n\n Will the Digital Yen use Blockchain?<\/strong><\/p>\n\n\n\n The report highlights the BoJ\u2019s considerations of incorporating blockchain technology<\/a> in its CBDC plans. The paper states that a centralized system that does not include DLT has larger capacities and are generally much faster as the transactions do not need consensus\u2014but this opens up the entire system to a single point of failure which can be attacked or could disrupt the entire system if it goes down.<\/p>\n\n\n\n On the flip-side, a blockchain-based CBDC will be immune to a single point of failure and be capable of \u201cresilience\u201d but is generally slower as consensus must be achieved across the decentralized network.<\/p>\n\n\n\n Curbing China\u2019s DCEP<\/strong><\/p>\n\n\n\n Bank of Japan (BoJ), the nation\u2019s central bank is aiming to create a digitized Yen to curb the potential influence<\/a> of China\u2019s own CBDC development\u2014the Digital Yuan or Digital Currency Electronic Payment (DCEP). There have been many reports that China is already actively testing its DCEP across a range of civilians, government employees<\/a>, and even some global organizations<\/a> within the mainland.<\/p>\n\n\n\n