The Bank of Japan (BOJ) announced the expansion of its experimentation with blockchain to liquidate central bank reserves, while highlighting that efforts are underway to create a retail central bank digital currency (CBDC).
The Bank of Japan launched a “sandbox project” to experiment with bank settlements and deposits using central bank money, Governor Kazuo Ueda said Tuesday in a speech titled “The new financial ecosystem and the role of central banks.”
“In this experimental project, the Bank will carry out technical experiments on settlement using central bank money in the form of current account deposits in a system using blockchains,” Ueda said.
The bank intends to explore “connection methods with the existing system, as well as examine use cases such as domestic interbank settlement and securities settlement,” he added. Analysts say the introduction of blockchain for reserve settlement would allow instant settlement 24 hours a day and reduce the risk of stagnation in stress events.
Ueda emphasized that the retail CBDC project is ongoing. “Firstly, the ongoing pilot program for retail central bank digital currency (CBDC) involves the bank’s continued conduct of technical experiments, which will enable it to provide… a digital form of cash when requested by the general public.”
Japan began experiments with CBDC in 2021 and launched a pilot program in 2023. But the central bank has not committed to issuing a digital yen. According to a previous report, the BOJ will decide this year whether to issue a retail CBDC.
Ueda also discussed Project Agorá,” an international experiment involving multiple central banks and major private financial institutions. He said its participants are considering “building a mechanism that would allow central banks, including the Bank of Japan, to issue central bank money as tokenized deposits on the blockchain.” If successful, he said, the effort “could bring innovation in terms of streamlining cross-border payments.”
Unlike a retail CBDC, which would function as a digital form of yen for the general public, tokenized central bank deposits would represent wholesale central bank money used by financial institutions on a blockchain-based infrastructure, according to Ueda’s speech.
The decision to use blockchain technology to settle reserves follows decisions by the United Kingdom and Hong Kong to issue sovereign debt on blockchain.
