The Bank of Japan (BOJ) announced the expansion of its blockchain experiments to settle central bank reserves, while highlighting that efforts for a retail central bank digital currency (CBDC) are underway.
The BOJ rolled out a “sandbox project” to experiment with settlements and bank 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 conduct technical experiments on settlement using central bank money in the form of current account deposits on a system using blockchains,” Ueda said.
The bank intends to explore “methods of interfacing with the existing system as well as exploring use cases such as domestic interbank settlement and securities settlement,” he added. Analysts say the introduction of blockchain for reserve settlement will allow for instant round-the-clock settlement and reduce the risk of gridlock in stress events.
Ueda emphasized that the retail CBDC project is ongoing. “First, the ongoing retail central bank digital currency (CBDC) pilot program involves the bank’s continued implementation of technical experiments that will enable it to deliver … a digital form of cash when demanded by the wider public.”
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 a previous report, the BOJ will decide this year whether to issue a retail CBDC.
Ueda also talked about Project Agorá,” an international experiment involving several central banks and large private financial institutions. He said its participants are considering “building a mechanism that will enable 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 that would act as a digital form of yen for the general public, tokenized central bank deposits would represent wholesale central bank money spent by financial institutions on blockchain-based infrastructure, according to Ueda’s speech.
The move to use blockchain technology to settle reserves follows decisions in the UK and Hong Kong to issue sovereign debt on the blockchain.
