"Creating a Digital Yen? Japan to Conduct Pilot Tests with Mega Banks Starting Next Year"

[Asia Economy Reporter Jeong Hyunjin] The Bank of Japan (BOJ) has begun preparations for a pilot test ahead of its decision to issue a 'digital yen.' It plans to conduct experiments with Japan's private financial sector for two years starting next spring and make a final decision on actual issuance in 2026. Following South Korea, the United States, China, and Europe, Japan, which had been somewhat slower in digitalization, is joining the movement, and discussions on central bank digital currencies (CBDCs) are expected to become more active.

[Image source=Reuters Yonhap News]

On the 24th, Nihon Keizai Shimbun reported that the BOJ has started coordinating by asking for participation intentions regarding a plan to conduct demonstration experiments with three mega banks and regional banks in the domestic financial sector. Since last year, the BOJ has been conducting internal investigations, reviewing the basic functions necessary for currency such as issuance and distribution of CBDCs, along with the United States and Europe. The pilot test planned for next year is the final stage aimed at the practical use of the digital yen.

According to the report, starting next spring, the BOJ will collaborate with private banks to verify whether there are any issues when the digital yen is used during bank account deposits and withdrawals. It will also check whether the system can operate in the event of a disaster when the internet is unavailable. Discussions on developing security-related functions are also planned not only with banks but also with fintech companies.

Nihon Keizai stated, "The BOJ's position is not to decide on CBDC adoption at this point but to make a judgment based on the experimental results," adding, "National consensus is necessary for adoption, and it will take time for legal revisions and system maintenance." BOJ Governor Haruhiko Kuroda responded to a question about CBDC issuance in January, stating, on the premise that it was his personal opinion, "We will make a decision by 2026."

CBDCs, digital currencies issued by central banks, have recently become a key focus of experiments by major central banks. CBDCs have the advantage of enabling real-time money exchange, reducing payment costs, and allowing remittances even at night or on holidays, thus offering high convenience. Compared to electronic payments, they can be used in more places. However, security risks such as hacking remain, and discussions are still ongoing regarding the level of information management by central banks from the perspective of personal data protection.

Major central banks are successively conducting CBDC adoption experiments. According to the Bank for International Settlements (BIS), about 90% of the world's central banks have started CBDC research. China, at the forefront of CBDC discussions, has already piloted the 'digital yuan' in some regions, and the U.S. Federal Reserve (Fed) has begun a demonstration experiment this month with the New York Fed and private banks such as Citigroup on the 'digital dollar.' The European Central Bank (ECB) plans to decide on the final adoption of the 'digital euro' next year after pilot experiments with companies like Amazon.

The Bank of Korea has already conducted pilot tests with domestic private companies from last year through this year and is currently conducting additional experiments with the banking sector.

This content was produced with the assistance of AI translation services.