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2023-02-21clock5 minutes

"We plan to develop a system for experiments." Said Bank of Japan (BoJ) Executive Director Shinichi Uchida.

Japan is preparing to take its first steps towards joining the global race to create a central bank digital currency (CBDC). The country's central bank announced on Friday that it will launch a pilot programme in April to test its own version of a CBDC called the digital yen. This marks a major milestone in Japan's two-year effort to develop a CBDC and keep pace with other major economies.

As mentioned, the Central bank has been experimenting with the idea of a CBDC for the past two years, and the announcement of the upcoming pilot programme marks a significant step forward in this process. While it may still take several more years for the digital yen to be officially launched, the pilot programme will help to determine the technical feasibility of the currency and identify any potential issues before it is released to the public.

What are the objectives?

The pilot programme for Japan's digital yen has two key objectives.

Firstly, it will test the technical feasibility of the currency, including its potential impact on the existing financial system.

Secondly, it will leverage the expertise of private businesses to help design a comprehensive CBDC ecosystem that is both efficient and user-friendly. By partnering with the private sector, Japan's central bank hopes to create a digital currency that meets the needs of all stakeholders.

CBDC Race?

Japan's move to pilot a digital yen comes after more than two years of conducting proof-of-concept experiments, during which time China has emerged as a frontrunner in the global CBDC race. However, Japan's efforts to create its own digital currency are still highly significant, given that more than 105 countries - representing over 95% of global GDP - are currently exploring CBDCs.

Central banks across the globe are embracing the potential benefits of CBDCs and are stepping up efforts to develop their own digital currencies. This trend is driven by a desire to modernize existing financial systems and create a more efficient payment infrastructure that can handle both domestic and international transactions.

Japan, along with other advanced economies, is racing to catch up with China, which has taken the lead in the global CBDC race. China has already begun piloting its digital yuan for retail payments, while other countries are still in the early stages of exploring CBDCs. Japan's pilot programme for the digital yen will help to accelerate its efforts to catch up with China and other leaders in the field.

The United States Federal Reserve has also been exploring the possibility of creating a fully digital dollar, which has been nicknamed "Fedcoin" by some. However, it has been made clear by Fed leaders that the launch of this asset would require the support of elected officials.

Advanced economies in the Group of Seven (G7) have been working together to ensure that their progress in issuing central bank digital currencies (CBDCs) is aligned. In 2021, the group came to an agreement that any digital currency created by a central bank must "do no harm" and must support the bank's mandate on monetary and financial stability.


Who will be the first to win the CBDC race and make the centralized digital currency fully adaptable is still unknown.

However, the trend that has engulfed the leading economies and caught them in the CBDC rush is visible. This creates even more interest in the mentioned project.