In a statement released yesterday, the Bank of Japan outlined the two main technical challenges the project must overcome: universality and resilience
In a report published yesterday, the Bank of Japan (BoJ) announced it will initiate a proof-of-concept (PoC) process for a digital yen. The Bank has not yet announced a timetable for issuing the currency.
The report, titled “Technical Issues for CBDC,” described the goals of experimenting with central bank digital currencies (CBDCs) and the potential benefits they could bring to Japan and the wider world.
It is important to note that China is currently ahead of Japan in the race to launch a national CBDC. Reports indicate China is already running tests of the digital yuan and began piloting the project in April across cities including Shenzhen, Chengdu, Suzhou and Xiong’an.
Thursday’s report states that the proposed experiment “would examine the technical feasibility of CBDC, cooperate with other central banks and relevant institutions, and consider the possible introduction of a CBDC.”
The report explains that ensuring universal access and developing operational resilience are the two principal technical challenges for the project. The first refers to making the country’s CBDC available to everyone, including people who do not own a smartphone.
Research shows that as of 2018 only about 65% of Japan’s population had access to a smartphone. For that reason, the BoJ stresses that “it is important to design a CBDC so it can be used by a wide range of people.”
The report also emphasizes the need to improve resilience so the currency remains available during power outages and other disruptions, noting that the digital yen must remain usable in emergencies such as earthquakes.
A centralized system carries the risk of collapse due to a single point of failure but can provide greater capacity and faster transaction speeds. Conversely, a decentralized system can avoid a single point of failure but typically processes transactions more slowly because blockchain networks require consensus among multiple validators.
“Both centralized and decentralized types have advantages and disadvantages […] for high-volume retail transactions in advanced economies. For centralized transaction volumes, it is better to adopt the centralized type […], while prioritizing resilience and future capabilities; there is room to consider the decentralized type,” the report concludes.