The Bank of Japan wants to digitize cash and has revealed that it would commence a proof-of-concept process with the digital yen.
The BoJ will begin experimenting with a central bank digital currency to check its feasibility from a technical perspective. However, the bank is yet to reveal a timetable.
The BoJ will commence a digital yen proof of concept. It anticipates two major technical challenges; ensuring universal access and finding the right balance between resilience (which favors a DLT platform) and capacity/speed (centralized ledger). https://t.co/ewGdR7LuxE — John Kiff (@Kiffmeister) July 3, 2020
In a report called Technical Hurdles for CBDC, the bank stated it would:
“check the feasibility of CBDC from technical perspectives, collaborate with other central banks and relevant institutions, and consider introducing a CBDC.”
In February, news emerged that the central banks of Britain, the eurozone, Japan, Canada, Sweden and Switzerland would collaborate on researching issuing digital currencies.
In its report, the BoJ considers two major technical hurdles:
Universal access refers to providing accessibility to everyone, including those without a smartphone.
However, according to Nikkei, as of 2018, only 65% of Japanese people have smartphones.
The BoJ said:
“It is important to develop the CBDC to be available to a variety of users.”
“Resilience”, on the other hand, refers to offline availability when electric power is down. The BoJ emphasized the importance of accessibility in any kind of environment, even in an emergency situation such as an earthquake.
The BoJ is considering whether or not to use blockchain for the CBDC.
A centralized system has the merits of “having large capacities and fast transaction speed” but the entire system can suddenly go down if there is a single point of failure.
In contrast, DLT-based CBDCs can overcome a single point of failure and show resilience.
However, it can require a longer amount of time to transact, as blockchain networks require consensus among multiple validators.
The BoJ concluded:
“Both centralized and decentralized types have pros and cons. […] 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.”