Digital yen

2023: Project Launch

At the end of May 2023, Japan launched its digital yen project after the second successful test (Proof of Concept) of technologies. The regulator published the results of the second phase of the experiment to test the concept of the central bank's digital currency (CBDC) and confirmed that the pilot project was launched in April 2023 as scheduled.

The second phase of the experiment ran for a year, from April 2022 to March 2023, and looked at features that complement the basic ledger functions tested in the first year-long experiment.

Japan launches digital yen

According to the report of the Japanese Central Bank, the second stage tested the technology to implement the upper limits of ownership of CBDC, which, according to the Minister of Finance of Japan Shunichi Suzuki, are precautions to ensure the stability of the financial system in the event of a sudden transition from bank accounts to CBDC. This includes cases where one user has multiple accounts with multiple intermediaries. The convenience for users when initiating and planning payments was also studied.

According to the Bank of Japan, in the second part, experiments were carried out with the database language and ledger design, as well as a model of tokens with a flexible value was tested. An orchestration system was implemented for faster processing of multiple transactions with the same account. The experiment assumed 100 thousand users with five intermediaries and considered loads of 500 and 3 thousand transactions per second, with a discussion of increasing scalability. Privacy was considered throughout the experiment, but was not discussed in detail. Offline payments were discussed in the context of fraud prevention and privacy.

At the Fintech Digest event, it was announced that the digital yen results had achieved the desired results and the report confirmed that the Bank of Japan had moved on to the planned CBDC pilot. The plans will explore the "end-to-end process flow" and further links to external systems. At the end of 2023, information will be received from private enterprises. The Bank of Japan announced that the agency will make a final decision on the release of CBDC by 2026.^[1]

2021: The start of the first phase of testing out of three for a period of 1 year

The Bank of Japan in April 2021 began the first phase of testing its own digital currency (CBDC), which will last until March 2022.

As part of this phase, the regulator will test the main functions of CBDC as a payment tool.

In total, three stages of testing the national digital currency are planned. The second phase is aimed at a more detailed study of CBDC, and during the third phase, private enterprises and ordinary users will have access to digital currency.

At this time, the closest to issuing its own national digital currency is the Bank of China (see Digital Yuan (DCEP)).

2020

Digital Yen Release Terms

The head of the payment systems department of the Bank of Japan, Kazushige Kamiyama, responsible for studying the possibility of issuing digital currency, said that the decision to launch a digital yen will depend on the support of society. This became known on October 26, 2020.

According to the Japanese regulator, the goal of the emergence of digital currency will be to strengthen the transaction ecosystem and supplement cash and cashless payments, and not replace them.

K. Kamiyama noted that the Bank of Japan has made it clear that cash and digital currency will coexist. For October 2020, decisions on the release of the digital yen have not yet been made, and will largely depend on the Japanese public. At the same time, cash remains the main means of settlement in Japan.

The possibility of launching a digital yen is being considered by the regulator to improve the efficiency of Japan's payment system, and not to strengthen monetary policy. To expand access to this currency, fintech companies could play the role of intermediaries, the regulator discusses whether they should have a special license.

The Bank of Japan should keep up with the People's Bank of China, which seeks to become the first major Central Bank to issue its own digital currency, Kamiyama said^[2].

Start of development

At the end of July 2020, the Bank of Japan announced that it was forming a working group to in-depth study the central bank's digital currency (CBDC). In its work, the group will rely on the research already done with digital currency. So far, the Bank of Japan has not announced the creation of a digital yen, but the release of CBDC is seen as the final stage of research.

The working group of lawmakers includes about 70 members of the Liberal Democratic Party, and is led by former Economy Minister Akira Amari. They plan to present their proposal to the government as early as August 2020, identifying the main technical and legal barriers that need to be overcome.

Earlier, the Bank of Japan had already considered issues such as the use of CBDC for retail and the legal issues of issuing a digital yen. The bank also collaborated on a multi-year CBDC study with, and in European Central Bank early 2020 joined a group of five other central banks Canada-,,,, and Europe England- Sweden to Switzerland share the data received.

Digital Yen Development Begins

Unlike Sweden, Japan has not yet experienced any particular problems related to the digitalization of payments. More than four in five retail transactions still use cash. However, the number of digital payment options is also growing. The working group believes the digital yen should be a joint initiative between the country's government and private companies to help Japan "keep pace with global changes in fintech."

The first step should be to study the release of the digital yen ... China is moving towards the release of the digital yuan, so we would like to develop measures for an adequate response, "said Deputy Foreign Minister Norihiro[3]

Notes