In October 2020, the Bank of Japan published a CBDC paper outlining its plans to launch a CBDC. Earlier today, the Governor of the Bank of Japan, Haruhiko Kuroda, confirmed that they are ready to begin the first phase of the CBDC trial this year, which will extend to March 2022. Then follow it up with Phase two of the trials in which it will assess more functions of the CBDC, such as the maximum amount of digital currency a single entity can hold.
Although this announcement has settled the doubts of concerned industry observers, the bank is clear that this is not a guarantee that they will go ahead with a CBDC in the future. The trials are to “test the efficacy and technical feasibility of the core functions and features of a CBDC,” such as distribution, issuance, and accessibility.
In a statement published earlier in March, the Governor of the Bank of Japan commented on the need to prepare for a time when CBDCs could be necessary:
“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. Amid significant changes that are occurring with the advent of the digital society, we will take this opportunity to carefully consider how we should provide central bank money.”
The Bank of Japan is not alone in the CBDC trial
The recent statement from the bank confirms that the CBDC trials have commenced. It also outlines the duration of the trial as part of its Proof of Concept Phase 1.
Other countries like China have already commenced their digital Yuan trials, with plans to issue the currency in the 2022 Bejin winter Olympics. This alone puts pressure on countries such as the US, which have outlined CBDC trials, and may lose influence if a competing digital currency hits the market first.
A recent CBDC survey by the Bank for International Settlements (BIS) also discovered that 60% of Banks surveyed were conducting Proofs of Concept out of a total of 65 central banks surveyed, signaling a significant interest in digital currency. Over the last four years, the interest in CBDCs has also increased significantly, and central banks engaging in some form of CBDC work currently stand at 86%.