Central Bank of Japan to Launch CBDC Pilot in April

The Bank of Japan intends to launch a central bank digital currency (CBDC) pilot in April this year, following a successful proof of concept (PoC).

The announcement was made by Uchida Shinichi, the executive director of Japan’s central bank, at the fifth meeting of the Liaison and Coordination Committee on CBDC.

The pilot will test the technical feasibility of a CBDC not already covered by the PoC as well as leverage the technological and operational "skills and insights" of private industry.

Currently, the Bank of Japan does not intend to allow any actual transactions between retailers and consumers during the pilot, only simulated transactions.

Shinichi said a functioning CBDC will need to interlink various systems such as central banks and intermediaries, and the pilot will therefore look to develop a series of experiments that test the end-to-end process, connecting the CBDC with external systems.

Additionally, it is hoped the pilot will engender design improvements through collaboration and discussion with private industry, facilitated by a newly-established CBDC Forum bringing in retail payment and paytech firms.

Issues to be considered include the potential challenges of connecting the experimental system with external ones; alternative data models and architectures for offline payments; the optimal design of the CBDC system in providing value-added services; and challenges, technologies or functions around user touchpoints.

"As for how to proceed with the pilot programme, we will launch the experiments with narrowed objectives, gradually expanding the scope of our experiments in a phased and planned manner," Shinichi said.

In a society that still uses cash, exploring a CBDC in a "phased manner" will ensure adaptations needed for a CBDC to be widely adopted are made, Shinichi adds.

"A method of payment is not something that becomes the norm once an ideal arrangement is brought into the world."

The pilot programme follows a white paper released in October 2020 and the PoC's first and second phases in April 2021 and April 2022, respectively.