The Bank of Japan (BoJ) has become the latest central bank to initiate experimenting with the concept of central bank digital currency (CBDC) to check the technical feasibilities.
On Thursday published Technical Hurdles for CBDC report, the central bank stated that it would “check the feasibility of CBDC from technical perspectives, collaborate with other central banks and relevant institutions, and consider introducing a CBDC.”
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This is the first official report on digital yen development published by the Japanese monetary regulator. Of course, the process is expedited with the massive head start by the People’s Bank of China (PBoC) on the digital yuan launch.
Technicalities need to be streamlined first
According to the BoJ, the introduction of such digital currencies has two main hurdles – universal access and resilience. For the first, all need have smartphone users, however, now only 65 percent of the Japanese citizens use smartphones.
For resilience, the central bank has to ensure that the citizens can access the digital yen even in an offline mode, otherwise in case of any emergency that would turn to be useless.
The Japanese central bank is also evaluating whether to use blockchain or not as both centralized and decentralized systems have their own advantages and disadvantages for digital currencies.
If centralized, it will guarantee faster transaction processing, but the entire system can be crippled with a single point of fault, whereas for decentralized systems, the presence of a network of nodes will ensure the robustness, but due to the consensus mechanism, the transaction speed can be significantly low.
“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,” the central bank noted.
The BoJ has also partnered with multiple other top global central banks to research into CBDCs.
Meanwhile, many other central banks are also testing the concept of digital fiats.