Japan to Launch Central Bank Digital Currency Pilot in April 2023

In April of 2023, Japan intends to launch a pilot program for a central bank digital currency (CBDC), even if the country does not permit the use of international stablecoins like Tether (USDT). It intends to include commercial companies and put a model of a CBDC ecosystem through its paces.

The Bank of Japan (BoJ) published Shinichi Uchida’s opening remarks from a CBDC committee meeting on February 17th. Uchida is the executive director of the BoJ. In it, Uchida announces that the Bank has chosen to begin a pilot program for “digital yen” in April after concluding its proof-of-concept testing, which began in 2021. This decision was made after the Bank completed its testing in 2021.

During the pilot test, the investigation into the technological viability of “digital yen” will continue, and the experiment will be expanded to include the modeling of a CBDC ecosystem with the involvement of commercial businesses. According to the official, for the course of the pilot project, there will be no real retail transactions, simply simulations of such transactions.

In his address, Uchida focuses on the design of the future CBDC as well as the need of consulting with the business sector about alternative data models, architectures for offline payments, and other essential components of the system. In order to facilitate discussions of this kind, the CBDC forum will be established.

Since the local media first announced the BoJ’s plan in November 2022, everyone was quite excited to hear the news regarding the CBDC pilot project. The Bank of Japan is reportedly going to work with at least three Japanese megabanks as well as regional banks.

In the meanwhile, the authorities in Japan are contemplating whether or not to repeal the restriction on foreign stablecoins that was passed into law in 2022. The Financial Services Agency of Japan estimates that the revisions will be ratified by the end of June 2023 at the latest. Despite the fact that they won’t automatically allow any foreign stablecoin to enter the market, they will give the all clear to those currencies that are able to successfully pass individual tests.


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Bank of Japan will test digital yen with three megabanks

Even though Japan is undecided if it would develop a central bank digital currency, the Bank of Japan (BoJ) is continuing to test out a digital version of the yen. This is the case despite the fact that the BoJ is testing out a digital version of the yen (CBDC).

Nikkei, a Japanese news agency, reported on November 23 that the Japanese central bank has begun working with three megabanks and regional banks to conduct a trial CBDC issuance. Nikkei’s report was based on information obtained from the Nikkei news agency. The Nikkei news agency was the source for the aforementioned information.

As part of the pilot program, the digital yen, which will eventually take the place of the paper yen as Japan’s national digital currency starting in the spring of 2023, will be tested. This will be the first time the digital yen will be used.

The Bank of Japan, together with other major private banks and other institutions, will work together as part of the experiment to identify and address any problems that may crop up with the method by which customers deposit and withdraw money from their bank accounts.

According to the story, the pilot will test how Japan’s future CBDC performs when it is not connected to the internet, with a special focus on payments that do not need the internet.

The Bank of Japan’s central bank plans to continue with its CBDC experiment for around two years, and it will make a decision by 2026 on whether or not to develop a digital currency. This information comes from the article.

The declaration comes at a time when an increasing number of countries all over the world are launching research and development activities on CBDC, with countries like China acting as models for the rest of the world to follow in their footsteps.

Despite the fact that the vast majority of governments throughout the world have been working tirelessly to implement a CBDC, some nations, such as Denmark, have made the decision to withdraw from the competition.

As the key reasons for discontinuing their CBDC or CBDC-related efforts, the central banks cited a number of issues as the primary reasons for their decision, including the likelihood of obstacles for the private sector, unknown value and benefits, and other problems.

To this day, there has not been a single central bank that has completely ruled out the possibility of the launch of a CBDC.


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Former BOJ official warns against use of digital yen in the financial sector

A former Bank of Japan (BOJ) official who reportedly headed the digital currency research is now advising against its use.

According to a report published in the Japan Times, Hiromi Yamaoka, the former head of the BOJ’s financial settlement department, advised against using the digital yen as a part of the country’s monetary policy.

Yamaoka’s biggest concern lies with the negative interest rates and believes once the digital yen becomes a prominent tool for mass payments, the common public would have to bear the brunt of the depleting value of the fiat currency. He went on to warn that the digital yen could pose a risk to financial stability and could have disastrous outcomes for the economy.

Yamaoka is currently working in the private sector, chairing a forum of 74 firms that include some of the biggest banks in the country. The forum is currently working on launching a private digital currency as early as April this year.

Related: Japan will prioritize simplicity in CBDC design, says central bank executive

In October 2020, the BOJ shared a three-phase trial outline for its central bank digital currency (CBDC). The first two phases of the trial are focused on testing the proofs-of-concept while the third phase would see a pilot. The first phase started in April 2021 and is expected to finish by March this year. The BOJ is expected to start the second phase of the trials later this year that would test the technical aspects around the issuance of the digital yen.

Despite being one of the first nations to introduce crypto regulations, cash is still a king in the Japanese retail sector owing to natural calamities which often cut off power in the country. Thus, the payment sector in the country is more focused on executing offline transactions. In July 2020, the central bank published a research report focusing on developing an offline CBDC.

BOJ Governor Haruhiko Kuroda said in a statement on Friday that they are not looking for an immediate launch. He also noted that a digital yen could launch by 2026 and the decision won’t be made by the central bank alone.