The Bank of Japan (BOJ) announced the expansion of its blockchain experiment to settle central bank reserves, while emphasizing that efforts for a retail central bank digital currency (CBDC) are underway.
The BOJ has launched a “sandbox project” to experiment with bank settlements and deposits using central bank currency, 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 conduct technical experiments on settlement using central bank currency in the form of current account deposits on a system using blockchains,” Ueda said.
The bank intends to explore “methods of connecting with the existing system as well as looking at use cases such as domestic interbank settlement and securities settlement”, he added. Analysts say the introduction of blockchain for reserve settlement would enable instant settlement around the clock and reduce the risk of gridlock in a crisis.
Ueda emphasized that the retail CBDC project is underway. “First, the ongoing pilot program for retail central bank digital currency (CBDC) involves the bank continuing technical experiments, which will provide… a digital form of cash when the general public demands it.”
Japan began CBDC experiments in 2021 and launched a pilot program in 2023. But the central bank has not committed to issuing a digital yen. According to an earlier report, the BOJ will decide this year whether to issue a retail CBDC.
Ueda also spoke about the Agorá Project, an international experiment involving several central banks and large private financial institutions. He said its participants planned to “build a mechanism that would allow central banks, including the Bank of Japan, to issue central bank money in the form of token 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, central bank token deposits would represent the wholesale central bank currency used by financial institutions on blockchain-based infrastructure, according to Ueda’s speech.
The decision to use blockchain technology to settle reserves follows decisions by the UK and Hong Kong to issue sovereign debt on blockchain.
