The Bank of Japan has no immediate plans to launch a central bank digital currency (CBDC), according to Director Kazunari Kamiyama. Speaking at the ninth CBDC Liaison Council meeting with private sector partners, Kamiyama cited Japan’s continued high cash usage as a primary factor in the decision.
His comments came ten days after the central bank released a second progress report on its digital yen pilot program, which involves seven working groups and 64 private companies through the CBDC Forum. These groups are tackling different aspects of digital currency development through both technical implementation and theoretical research.
Exploring blockchain integration
One working group is examining how CBDCs might integrate with emerging technologies like distributed ledger technology (DLT). As part of this exploration, researchers considered deploying a CBDC on a public blockchain. However, they concluded this approach isn’t currently viable due to scalability limitations, privacy concerns and governance challenges.
The group did identify potential future pathways, including layer 2 blockchain solutions that offer greater control and future iterations of zero knowledge proof technologies. They also explored issuing a cryptocurrency backed by a CBDC – essentially creating a stablecoin – though this would require strict wallet and smart contract whitelisting.
Another avenue under consideration involves using CBDCs to settle security token transactions on permissioned blockchains, though this approach would require pre-funding mechanisms.
API development and performance optimization
Drawing inspiration from the UK’s Project Rosalind, another working group focused on application programming interfaces (APIs). Their research emphasized the need for modular, basic APIs that could be combined like building blocks to create more sophisticated applications.
While APIs offer valuable functionality, the researchers noted that excessive usage could create performance bottlenecks. For instance, frequent API calls to verify transaction completion could strain the system. Instead, the central bank favors webhook technology, which reverses the data flow by pushing notifications to users when transactions are completed – similar to how smartphone notifications work.
Future research direction
The working groups have so far examined features in isolation, but the central bank plans to explore how different elements interact across the system. Despite having no immediate issuance plans, Japan will continue its CBDC research efforts.
Beyond domestic considerations, Japan participates in Project Agorá, a BIS-led international initiative involving seven central banks and 41 institutions. This project aims to enhance cross border payments by combining CBDCs, tokenization, and correspondent banking.
The Bank of Japan’s measured approach reflects a careful balance between staying current with digital currency developments while addressing the practical realities of Japan’s cash-reliant economy.
While Japan explores digital currency possibilities, its timeline remains tied to actual market demand rather than technological capability.
