Bank of Japan Completes Successful CBDC PoC Phase

The Bank of Japan (BOJ) has announced the results of the second phase of its central bank digital currency (CBDC) proof-of-concept (PoC) experiment and confirmed that its CBDC pilot project was launched on time in April.

The second proof-of-concept ran for a year, from April 2022 to March 2023, and examined functions that complemented the essential ledger functions reviewed in the first yearlong experiment.

In the second phase, the BOJ tested technology to implement upper limits on CBDC holdings, described as “safeguards ensuring the financial system’s stability” in the event of a sudden shift from bank accounts to CBDC.

This included situations where a single user maintained multiple accounts with multiple intermediaries.

The user-friendliness of initiating and scheduling payments was also investigated.

In the backend, database language and ledger design experiments were conducted, and a flexible-value token model was evaluated.

A system of orchestration was implemented to expedite the processing of multiple transactions involving the same account.

The experiment considered 500 and 3,000 transactions per second under loads of 500 and 3,000 per second, discussing increasing scalability.

Privacy was considered throughout but was not extensively discussed. Offline payments were discussed in terms of preventing fraud and protecting privacy.

The PoCs were deemed successful in achieving their intended outcomes, and the report confirmed that the BOJ had moved on to its CBDC pilot project as planned.

The pilot project will investigate “end-to-end process flow” and additional external-system connections.

According to the report:

“Whether to issue a CBDC should be decided by discussions among the Japanese public.”

A CBDC Forum will be established to solicit input from private businesses.

The BOJ has stated that a final determination regarding the issuance of a CBDC will be made by 2026.