Tokyo FinTech
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Tokyo FinTech

Kuroda: Bank of Japan’s CBDC experiment to commence shortly

During his speech at this week’s FINSUM FinTech conference, Bank of Japan (BOJ) Governor Kuroda stated that the central bank’s experiment with Central Bank Digital Currencies (CBDCs) is to commence shortly.

Finally, I would like to touch upon central bank digital currency (CBDC). Since the release of “The Bank of Japan’s Approach to Central Bank Digital Currency” in October 2020, the Bank of Japan has been preparing to conduct experiments in accordance with this approach. We are finally scheduled to begin these experiments in spring 2021.

While there is no change in the Bank’s stance that it “currently has no plan to issue CBDC,” 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. Central banks share the view that it is not an appropriate policy response to start considering CBDC only when the need to issue CBDC arises in the future.

According to a recent survey of 65 central banks conducted by the Bank for International Settlements (BIS), 86 percent were exploring the benefits and drawbacks of CBDC issuance for some forms of work and about 60 percent were conducting experiments or a Proof-of-Concept (PoC). As for the Bank, amid significant changes that are occurring with the advent of the digital society, we will take this opportunity to carefully consider the way in which we should provide central bank money, or, using expressions from today’s theme, “Central Banking as a Service.”

As a reminder, in the position paper mentioned in Kuroda’s comments, the BOJ initially stated that the experiment start “in early 2021”, so the revised spring timing can be viewed as a slight delay. The paper also laid out three stages for the implementation of CDBCs.

  • Proof-of-Concept (PoC) Phase 1, focused on developing a test environment for the CBDC system and conduct experiments on the basic functions that are core to CBDC as a payment instrument — namely, issuance, distribution, and redemption
  • PoC Phase 2, to implement additional functions of CBDC in the test environment developed in Phase 1 and test their feasibility
  • Pilot Progam, if the Bank judges it necessary to step things up further, it will also consider a pilot program that somewhat reflects the actual design and functions of CBDC and involves Payment Service Providers (PSPs) and end users

Overall, the position of the BOJ is very much in line with the communication coming out of the ECB, for example, which also stated similarly that at this point, it has not made any decision to issue CDBCs, but is learning & experimenting. Given the three phases outlined above, this will be a multi-year process, while other central banks, notably China’s PBOC, are forging ahead. It will be interesting to watch how this plays out.

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Norbert Gehrke

Norbert Gehrke

Passionate about strategy & innovation across Asia. At home in Japan. Connector of people & ideas.

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