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The Bank of Japan has published a new report on Central Bank Digital Currency

The Bank of Japan has published a new report on central bank digital currencies to study the technical aspects of a digital yen

On July 2, the Bank of Japan (BoJ), Japan’s central bank, published a report titled “Technical challenges of CBDC: Central Bank Digital Currency as the cash equivalent.” In this report, the BoJ focuses on the technical challenges of central bank digital currency (CBDC). Most major central banks around the world anticipate the deployment of CBDCs in the decade ahead. The report explore the technical issues that need to be solved in order for a CBDC to have the same properties as cash.

In order for CBDC to have cash-equivalent functionality, the BoJ states that CBDC needs to be a payment method that can be used to settle transactions securely and reliably by anyone, anytime and anywhere. The report says a CBDC must have two properties: “universal access” and “resilience.”

On universal access, the BoJ believes that CBDC should be designed to ensure that everyone can use it, without restricting the scope of users. With this in mind, the report adds that it would be desirable for people in all age groups, from children to the elderly, to have access to CBDC, and it would be optimal if CBDC was available to inbound tourists visiting Japan. In addition, the document points out that CBDC should be designed to support peer-to-peer (P2P) transactions, including money exchanged among individuals, just like cash, instead of limiting the payment functionality to money paid to companies, such as payments from individuals to merchants.

The report also examines the property of resilience. The BoJ identifies overcoming the vulnerabilities of online services utilizing computers and networks, such as the internet, as an issue. The report notes that many forms of credit card and smartphone payments require an online network connection when users send money or make payments, so access to such payments will be limited during a system or connection failure. Moreover, the document adds that online payments require a continuous supply of power.

In light of these considerations, the BoJ summarizes its position as follows: In order for CBDC to have the properties of universal access and resilience, it would be desirable to offer offline P2P payment transactions that can withstand connection and power outages, using specialized terminals accessible to many different people.

Furthermore, the BoJ identifies two different types of ledger management: the “centralized type,” where a single entity owns the ledger and verifies transactions and keeps transaction records, and the “decentralized type,” where multiple entities own a single ledger and each entity verifies transactions and keeps transaction records. In choosing which type of ledger to adopt, the BoJ articulated its belief that both centralized and decentralized types have pros and cons, and that it will be crucial to study this matter further based on consideration of the prospects for technological innovation in the future, as well as the purpose and environment of use.

Looking ahead, the BoJ stated that it plans to “check the feasibility of CBDC from technical perspectives through such means as experimentation, collaborate with other central banks and relevant institutions, and consider introducing a CBDC.”


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