The Central Bank of Japan made public its intentions to start tests with a central bank digital currency (also known as CBDC), to establish its feasibility from a technical standpoint.
It is the first instance that the Bank of Japan has expressed its desire to run a Proof of Concept (POC) process with the digital yen. The bank has not revealed a timetable regarding the research and development so far.
The institution believes that the main technical difficulties it will be faced with throughout its research will be ensuring the provision of universal access to the technology and building sturdiness for the asset.
According to the results of a Nikkei study, conducted in 2018, only 65% of the Japanese use smartphones. The central bank noted that it will be important to develop CBDC that is accessible to a wide pool of users.
The resilience of the CBDC’s represents the capacity for the asset to be available offline when there is no running electricity. This feature is a priority for the Bank of Japan, because it determents the ability of the CBDC`s to be used in earthquakes of other emergency situations.
The institution is still contemplating the merit of using a blockchain for their CBDC. A centralized system will be able to ensure fast transactions and a considerable amount of operations, but the entire system is exposed to malfunction if a single point of failure exists.
On the other side, CBDCs based on decentralized ledger technology (DLT) are not as exposed to a single point of failure and offer better sustainability. However, implementing this option will lead to a longer time for approving transactions since blockchain networks will require an established consensus between multiple validators.
A report, bearing the headline “Technical Hurdles for CBDC”, explains the banks thoughts on the issue. It states that both centralized and decentralized types have positive and negative attributes. In the case of advanced countries, where a large amount of transaction is conducted, it is preferable to adopt the centralized type. However, in the case where the amount of transactions is limited and sustainability and other concerns are prioritized, there are conditions to consider the decentralized type.
An announcement, made in February this year, informed that the central banks of the eurozone, Japan, Switzerland, Sweden, the United Kingdom, and Canada are to collaborate on the research of CBDCs.
