The Bank of Japan has been preparing to start testing Central Bank Digital Currency (CBDC) in the early fiscal year 2021 to see if the core functions and features required for CBDC are technically feasible. Proof of Concept (PoC) Phase 1 begins today, with all necessary preparations completed.
To modernise their financial systems, ward off the threat of cryptocurrencies, and speed up domestic and international payments, global central banks are looking to develop digital currencies.
Several countries are considering adopting CDBC because governments are struggling to control the massive popularity of Bitcoin and other cryptocurrencies. The traditional banking system will inevitably collapse if this continues for the next few years.
A central bank digital currency (CBDC) is a digital representation of a nation's fiat currency that uses a blockchain-based token. A CBDC is a centralised currency that is issued and regulated by the country's competent monetary authority.
Following the completion of the second phase of testing, the bank plans to launch a pilot CBDC programme involving payment service providers and end-users, according to the original CBDC experiment roadmap. This phase will test the feasibility of additional CBDC functions in the test environment created in the first phase.
Japan currently has the world's most progressive regulatory climate for cryptocurrencies, and the Payment Services Act recognises Bitcoin and other digital currencies as legal property (PSA).