The Bank of Japan (BoJ) has become the latest of central banks that joined experimenting with the central bank digital currency (CBDC) after it announced the launching of the testing of a digital Japanese Yen.
In a report entitled “Technical Hurdles for CBDC” published on July 2, the BoJ said that it is studying the pros and cons of creating a digital version of the Japanese Yen.
The bank of Japan added that “it will check the feasibility of CBDC from technical perspectives, cooperate with other central banks and relevant institutions.” It emphasized that it considers introducing a CBDC.
Japan seeks to join China, which already begun testing its own CBDC last April, to test a digital Japanese Yen.
Meanwhile, Tokyo aspires to precede the launching of Facebook-led digital currency Libra, which is considered as a threat to the sovereignty of central banks across the world.
The is the first time that “the BoJ revealed to commence a proof-of-concept process with the digital Japanese yen,” according to Cointelegraph website. However, the bank has not disclosed yet a timetable for such process.
Requirements to issue digital Yen
The BoJ seeks through its experiment of testing the feasibility of the digital Yen to prove the avail of such move if it is could meet the main conditions which are the universal access and flexibility.
The first condition (the universal access) refers to ensure that all citizens have access to the digital Yen, including those without smartphones.
Japanese newspaper Nikkei previously published surprising information when it estimated that as of 2018; only 65% of Japanese people have smartphones.
Meanwhile, the Bank of Japan said that it is necessary to develop a feasible digital currency of the CBDC to be available for all users. This allows easy use of CBDC for children and elderly, according to Decrypt website.
The flexibility, the second condition, means the imperative of the availability of digital customer services, even in an offline mode or in the case of a power cut.
Furthermore, the Bank of Japan emphasized the need for the accessibility of this currency under any conditions, even in emergency cases such as earthquakes.
Digital Yen and Blockchain
So far, the BoJ has not decided whether to use distributed ledger technology (DLT) which relies on Blockchain, or it will use more traditional centralized system for the digital Yen.
However, he BoJ said it considers the two options, including a hybrid system that combines both of them and choose between them depending on the circumstances.
“Both centralized and decentralized types have pros and cons,” the BoJ said. It added that in “the case of massive transactions for retail use cases in advanced countries, it is better to adopt the centralized type.”
“In the case where the amount of transaction is limited and resilience and future possibility are prioritized, there is room to consider the decentralized type,” the BoJ highlighted
80% of the world’s central banks consider issuing digital currencies
Earlier in January, the Bank for International Settlements (BIS) revealed in research that 80% of the world’s central banks are undertaking extensive work on central bank digital currencies.
The BIS said that “10% of those banks developed pilot projects for their digital currencies.”
“Central banks representing 20% of the world’s populations say they are likely to issue the first CBDCs in the next few years,” the reported read.
A total of 66 central banks controlling 90% of the global economy participated in BIS survey, including central banks of Australia, Brazil, China, France, Britain and the United States.
Last February, the central banks of Britain, the Eurozone, Japan, Canada, Sweden and Switzerland reportedly announced a cooperation plan on researching issuing digital currencies, according to Cointelegraph website.