The Bank of Japan wants to digitize cashHowever, it remains to be seen whether the country will succeed in catching up with China, which has already started testing its own CBDC. It is the first time that the BoJ has announced that it will start a proof-of-concept process with the digital yen, but the bank hasn’t announced a schedule yet.
In a report entitled “Technical Hurdles for CBDC”, The bank said that “it would technically review the profitability of the digital currencywould work with other relevant central banks and institutions and would consider introducing a CBDC “.
In February, it was announced that central banks in the UK, the Eurozone, Japan, Canada, Sweden and Switzerland announced a plan to cooperate in investigating digital currency issuance.
The biggest obstacles
In your report The Bank of Japan considers two major technical hurdles: universal access and resistance. The first relates to offer accessibility for everyone, even for those who don’t have a smartphone. Surprisingly, according to Nikkei, only 65% of Japanese had a smartphone in 2018. The banking authorities said: “It is important to develop a CBDC in order to make it available to all users.”
“Resistance” refers to the offline availability in the event of a power failure. The bank stressed the importance of accessibility in any environment. even in an emergency like an earthquake.
Digital yen and blockchain
The BoJ is considering using a blockchain platform for its CBDC. A central system has the advantage of “having large capacities and a fast transaction speed”, but the whole system can suddenly crash if there is a single point of failure.
Vice versa, CBDCs based on DLT technology can overcome a single point of failure and show resistance, however, require longer transaction times because blockchain networks require consensus between multiple validators.
The BoJ concluded:
“Both the centralized and the decentralized type have advantages and disadvantages. […] For bulk transactions for use cases in retail in advanced countries, it is better to adopt the centralized tariff. […] In the event that the transaction volume is limited and resilience and future opportunities take precedence, it is possible to consider the decentralized model. “
In April it was reported that China’s digital yuan had been tested in the cities of Shenzhen, Chengdu, Suzhou and Xiongan.