Since 2020, the Central Bank of Japan has been developing a platform for a digital yen. Even if it is still unclear whether this will really exist, the development is progressing. In April, the project reaches a semi-public pilot.
The central bank of Japan also wants to roll out a pilot project for a digital currency , the digital yen, in April.
The central bank is based on a concept that it developed in October 2020 and which it has been testing since April 2021. In March it will complete a proof of concept that tested the core technical functionality, before launching the pilot in April.
However, the pilot project will not issue real digital yen, but will create a system for experiments to test the full multi-layered model of the digital yen. So far, only the two lowest layers, the “central system” and the “intermediate network system”. Now other “intermediate systems” and “endpoints” are added. “The bank will,” explains the press release, “test the end-to-end process as we plan the actions and potential challenges of how to connect the experimental system to external systems.” It is currently not planned, actual transactions to integrate between dealers and customers.
In general, the central bank emphasizes that it is not up to them to decide whether there will be a digital yen, but to the Japanese public. With the pilot project, she wants to help make the right decision and be ready to implement it.
The concrete technology remains relatively ominous in this project as well. But at least the central bank freely gives insight into the concepts discussed and tested. In a paper published in May 2022 , she reports on the course of the experiments to date. She tested three architectures for this. In the first, the central bank maintains an account book with the balances of all intermediaries and end users. In the second, the central bank’s account book contains only the balances of the intermediaries, while they document the balances of the users. Finally, in the third design, monetary records with a specific ID represent specific values, and these IDs are linked to the IDs of the users. The central bank calls this design “token-based”.
In the proof of concept, the central bank then tested the performance of these drafts. A typical future throughput should be tens of thousands of transactions per second, with peaks in excess of 100,000, and latency of no more than a few seconds. For distributed systems such as blockchains, these are enormous volumes that no monolithic system – whether centralized or decentralized – can handle, but only nodes that are made up of numerous layers.
For the specific tests, the central bank has lowered the requirements somewhat. It generated 500 transactions per second for each design, which should process them without delay. With a peak load of 3,000 transactions per second, effects on performance were expected that show which models scale better. In fact, only the first design – in which the central bank holds all accounts – was able to withstand the peak load scenario. The other designs couldn’t quite reach the full load, while latency increased significantly.
In the meantime, however, the central bank is certain, says central bank director Shinichi Uchida in an opening speech , “that the performance of our CBDC system can be maintained, even with additional functions that are challenging to introduce” – such as comparing whether the balances and transactions of users not exceed any limits imposed on them, even if they have multiple accounts.
With the pilot, which begins in April, they don’t just want to test whether the system also works beyond the scope of the proof of concept. Rather, the central bank would like to involve private actors, such as traders or banks, in order to use their knowledge and skills and to adapt the CBDC to them.
Therefore, the central bank will set up a CBDC forum in which it will discuss a “wide range of issues related to customer payments” with private entrepreneurs. Uchida emphasizes that she hopes that this discussion will improve the design of the CBDC – and stimulate the debate about its introduction.