The bank of Japan has announced plans to begin experimenting with a Central Bank Digital Currency (CBDC). This is a big boost for those who champion for CBDCs as more governments are now beginning to look to that direction.
The bank of Japan is doing its best to digitize cash, with plans to catch up with China being top of their priority list. Excitement is in the air because this is the first time the Bank of Japan (BOJ) has revealed its intention to look into the Proof-of Concept process with the digital Yen. It is still up in the air though, when it comes to when we can expect solid progress and launches.
BOJ looking at Major hurdles
It was a revealed in a recent report that the BOJ outlined plans to collaborate with other central banks and relevant institutions as well as check for the feasibility of CBDC from technical perspectives. In the report, the BOJ is pondering on two major challenges that will be in the way. One is access to even those that lack smartphones, and the other is the resilience issue.
According to Nikkei, only about 65% of Japanese people own a smartphone. The BOJ believes that this number has to be way higher for the CBDC to work efficiently and inclusively. It is, therefore, important to structure it in a way that the technology is accessible to everyone. Resilience refers to availability even when offline. The solution won’t work if it’s only available when electric power is on, it should be available even in times of disasters like earthquakes.
To Blockchain or not to Blockchain?
The BOJ is considering pegging the CBDC on Blockchain. There are clear benefits to doing that; the main one is that a decentralized system mitigates the risk of entire shutdown in case of a technical hitch. The Blockchain protects against having a single point of failure and establish resilience in the system. A centralized system, on the other hand, provides large capacities and fast transaction fees. The BOJ in a latter statement appeared to have made their decision;
“Both centralized and decentralized types have pros and cons. In the case of massive transactions for retail use cases in advanced countries, it is better to adopt the centralized type. In the case where the amount of transaction is limited and resilience and future possibility are prioritized, there is room to consider the decentralized type.”
It looks like centralized will do at least for now as they go ahead with pilot tests. The BOJ has joined the league of central banks that are actively looking into CBDC research such as the top banks of Sweden, Switzerland, Canada, and others.
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