Japan’s Central Bank Explores CBDC

Japan’s Central Bank Explores CBDC

2020 seems to be the year for Centrally Backed Digital Currency (CBDC). After China, which has already started deployment of its digital Yuan, Japan has also joined this space. In a research paper recently published, the Bank of Japan (BoJ) announced that it plans to implement a digital yen based on Distributed Ledger Technology (DLT). 

Japan leads the Crypto and Blockchain Sphere: Japan is certainly one of the leading countries in the blockchain sector. Its involvement in the blockchain sphere grew by nearly 30% in July 2020 as compared to last year. Further, the plans of a CBDC has it competing right alongside China in leveraging technological innovations. 

Challenges with CDBC

In the report, BoJ explores technical challenges with implementing a CBDC such that it has functionalities equivalent to cash. To be used as a payment method, the CBDC needs to have two important properties: Universal access and Resilience. 

In light of these properties, the report states that it is crucial to have a CBDC system that works offline as Japan faces frequent power outrages. The CBDC should be designed such that it caters to P2P transactions along with having the resilient functionality as a payment mode. 

The report further considered the aspects of CBDC including whether it should be centralized or decentralized. Also, should it be on a blockchain or another Decentralized Ledger Technology (DLT). 

Looking ahead: BoJ states that it next plans to check the feasibility of CBDC by experimentations and collaboration with other financial institutions.

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