Bank of Japan CBDC PoC Phase 2 Results
The Bank of Japan (BoJ) has issued a results report for the Phase 2 of its Central Bank Digital Currency (CBDC) Proof-of-Concept (PoC) that was conducted between April 2022 and March 2023. In the interim, preparations for the Pilot Program have commenced with the new fiscal year in April, which we have covered in a previous article.
The objective of the PoC Phase 2 was to uncover potential technical issues early as they relate to the basic functions covered in Phase 1. Some desirable peripheral functions not covered in Phase 1 were also added. Then, the technical implementation and processing performance was validated.
The Bank of Japan stresses once more that a decision on the introduction of a CBDC in Japan has not been made at this point, and such decision will require a national discussion. However, the Bank of Japan believes it is important to continue preparations, including technical verification tests, so that it can respond appropriately to possible outcomes of that national discussion.
The peripheral functions to be tested were categorized into three groupings, of which (I) the economic design covered various safeguards to prevent a sudden shift from bank deposits to CBDC, (II) improvements in the convenience of payments broadly addressed the user experience, and (III) the intermediary structure and connectivity was evaluated.
Economic design
- Restrictions on maximum amount held
- Restrictions on maximum transaction amount and number of transactions
- Automatic acceptance of excess amount and remittance to bank deposits when upper limit is breached
- Interest paid on amount held
Improved payment convenience
- Persistence of remittance instructions
- Batch remittances
- Reverse remittances
Coordination between intermediaries and external systems
- Provision of multiple accounts to one user
- Validation of restrictions on holding amount, transaction amount and number of transaction based on the “multiple accounts” model
- Connectivity to external systems
Further, as new technologies that were not verified in Phase 1, variable denomination tokens and the possibility of using a NoSQL database were also examined.
In order to achieve the PoC Phase 1 objectives, three design patterns for the CBDC ledger were built on the public cloud in the experiment:
- Pattern 1: account-based CBDC ledger that recognize CBDC holdings as the balances of accounts held by intermediaries and end users, with the central bank maintaining a single ledger that records the account balances of all intermediaries and end users;
- Pattern 2: account-based CBDC ledger that recognize CBDC holdings as the balances of accounts held by intermediaries and end users, with a multi-ledger architecture — the central bank maintains one ledger that records the account balances of intermediary institutions (proprietary and end user accounts), while each intermediary institution maintains a ledger that records the account balances of its own end users;
- Pattern 3: token-based CBDC ledger that assigns a unique identifier (ID) to monetary data of a certain denomination and recognizes CBDC holdings by linking such ID to the user ID. For this pattern, Phase 1 verified fixed denomination tokens, and Phase 2 added variable denomination tokens.
The PoC Phase 2 added a fourth pattern, that describes a token-based CBDC ledger with a multi-ledger architecture:
- Pattern4: token-based CBDC ledger that recognize CBDC holdings as the balances of accounts held by intermediaries and end users, with a multi-ledger architecture — the central bank maintains one ledger that records the account balances of intermediary institutions (proprietary and end user accounts), while each intermediary institution maintains a ledger that records the account balances of its own end users.
For the implementation of peripheral functions, multiple systems were constructed, and APIs (Application Programming Interfaces) were used to link the systems. Specifically, in addition to the ledger system built in Phase 1, the Phase 2 system included a transaction history management
system that enabled determination of the transaction amount and frequency limit, and a reservation management system that automatically activates remittance instructions reserved by users.
In order to verify the impact of adding peripheral functions on system performance, the basic settings for the performance test were the same as in Phase 1. In other words, the number of users is 100,000, the number of intermediaries is 5, and the load of trading instructions for the basic function is 500 per second for the normal load scenario and 3,000 per second for the high load scenario.
It was confirmed that the same number of cases was achieved and that there were no performance bottlenecks. Latency (processing time for one transaction) increased somewhat compared to Phase 1 due to an increase in the amount of processing and the number of systems that were passed through, and the base of the distribution expanded slightly. Despite that, processing time was generally less than 200 milliseconds, indicating no significant performance degradation.
Source: Bank of Japan CBDC PoC Phase 2 Results Report (Japanese)
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