Japan to start digital yen trials in 2023

Japan is moving into the next stage of its experiments with its central bank digital currency (CBDC). The Bank of Japan (BoJ) is planning to experiment with the digital yen along with three megabanks and some other regional banks in the country.

Despite Japan’s initial apprehensions about issuing a CBDC, the country’s central bank is piloting the digital yen for the next two years. The upcoming trial will check the practical use of the CBDC.

Central bank experiments with digital yen

Scheduled to launch in 2023, the digital yen pilot will include private banks and other organisations with the goal to identify use cases for customer deposits and withdrawals. The central bank will also check if the CBDC can operate during natural disasters and test its offline functionality.

Currently, in the second phase of experimentation, the trials with Japanese banks will constitute the third phase of CBDC testing by the BoJ.

Although the names of the participant banks have not been disclosed, Japan’s “three megabanks” typically refer to Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc., and Mizuho Financial Group Inc.

Last year, the BoJ joined a growing list of central banks around the world exploring CBDCs by creating a test environment. The trials for the digital yen will examine basic functions such as issuance, distribution, and redemption.

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Previously, a BoJ official stated that the central bank’s priority is to ensure that a CBDC allows competition among private payment providers while also being universally accessible to the public.

The experiment will last for two years, and the central bank governor Haruhiko Kuroda said a final decision on the issuance of a CBDC will be made in 2026.

Back in May, the central bank published a working paper on the results and findings from digital yen’s ‘Proof of Concept Phase 1’.

Apart from Japan, some of the other countries in Asia experimenting with CBDCs are China, India, Hong Kong, Thailand, and Singapore, among others. China is leading the global race to release CBDCs and has already issued the digital yuan to some of its citizens.