The main concern of the issuing entity is to guarantee universal access to the digital currency. It also proposes the use of the CBDC offline, in case of power or Internet failures.
The world’s central banks have digital central bank currencies (CBDC) as part of their agenda. The Bank of Japan (BoJ) recently expressed its willingness to implement a CBDC, through the publication of the document “Technical problems for the CBDC to have a function equivalent to that of cash.”
According to the report, the proposed experiment will examine the viability of the CBDC from a technical perspective. The BoJ would work with other relevant central banks and institutions, and consider the introduction of a CBDC.
Regarding the use of cash, the BoJ states that its circulation continues to increase and that there are currently no problems accessing it. However, the regulator indicates that the lack of cash will increasingly progress in all countries, in the context of the digitization of the economy.
The BoJ notes that to support the economic activities of individual economic agents, it is impossible to have a convenient and stable payment method that anyone can use, so the central bank must be responsible for the supply in the digital society. For the CBDC to have the same functions as current cash, it is necessary to have a payment method that anyone can use securely and reliably anywhere and anytime. In other words, the CBDC must have “universal access” and “resilience”.
Concerning universal access, the BoJ notes that the penetration of smartphones in Japan is 65%, which is not enough to guarantee universal access. Consequently, they say that it is necessary to develop cost-effective terminals, which several users can use.
Concerning resilience or the ability to cope with power or Internet failures, the Bank of Japan notes that it is desirable to ensure an offline P2P payment function resistant to communications and power outages.
The document analyzes several scenarios including devices with a format similar to that of a credit card, equipped with a keyboard and a small screen. However, the issuing entity considers that offline P2P operations with CBDCs still have many problems to solve, especially to guarantee privacy and security. In its conclusions, the BoJ says that further research and technological development is necessary.
In addition to the problems of settlement addressed, the study considers it necessary to know the impact of issuing CBDCs on financial systems. The BoJ says that it is necessary to understand the society’s needs for central bank money, as well as to deepen discussions about the most appropriate form of central bank money for a digital society.
Finally, the Japanese Central Bank highlights that it will confirm the technological viability of CBDCs. For this reason, it will conduct field tests and will continue the discussion on these with other central banks.
There have already been reports of initial testing of digital currencies in China by state banks. Meanwhile, the crisis over the COVID-19 pandemic has raised the expectation of central banks about central bank digital currencies.
By Alexander Salazar
