Central bank digital currencies (CBDCs) have been gaining traction in recent years, with several countries exploring the possibility of issuing their own digital currencies. Three major players in this space are Japan, China, and Russia, all of whom have made recent announcements related to their progress.
Japan’s Central Bank Digital Yen
The Bank of Japan (BoJ) has been testing a digital yen since 2021 and is now moving into the next phase of its pilot program. Executive Director Shinichi Uchida recently announced that the BoJ has decided to launch the next phase of its pilot program for the digital yen in April. This next phase will mainly focus on connecting the various systems that will be involved with the digital yen, including the BoJ, intermediary network systems, other stakeholders, and users by way of intermediaries.
Under the pilot program, the BoJ plans to develop a system for experiments, where a central system, intermediary network systems, intermediary systems, and endpoint devices would be configured in an integrated manner. On this basis, the BoJ plans to test the end-to-end process flow and outline the measures and potential challenges for connecting the experimental system with external ones.
All transactions are experimental in nature and no actual retail transitions will be made during the pilot, only simulated ones. The issuance of a digital yen requires close collaboration between the government, private sector, and end-users, and significant changes would need to be made in the financial system to accommodate its release and facilitate its adoption.
Read More: India’s CBDC Pilot Reaches 50,000 Users and 5,000 Merchants
China’s Digital Yuan
China is leading the global race to release a CBDC, having already launched pilot programs for its digital yuan. The People’s Bank of China (PBoC) is currently working on a retail-focused cross-border digital yuan pilot with Hong Kong, which began on Feb. 11.
The PBoC plans to distribute a total of 10 million yuan ($1.48 million) via “digital RMB red envelopes,” with each envelope containing up to 999 yuan (around $145). Token recipients will be able to spend their digital yuan holdings at a variety of venues, including restaurants, hotels, supermarkets, jewelry shops, and for home appliances.
The central bank is also planning to launch a series of similar pilots for the territory of Macau as it looks to further expand the distribution of the e-CNY beyond the mainland.
Russia’s Digital Ruble
The Bank of Russia is preparing to roll out the first consumer pilot for the nation’s central bank digital currency (CBDC) on April 1, 2023. Russia’s central bank is set to debut the first real-world digital ruble transactions involving 13 local banks and several merchants, with first deputy governor Olga Skorobogatova stating that the pilot will involve real operations and real consumers in Russia but will be limited to a certain number of transactions and customers.
“We plan to launch the digital ruble project on April 1, with transactions involving individual transfers as well as payments in trade and service enterprises,” Skorobogatova stated at the Ural Forum Cybersecurity in Finance. The deputy governor clarified that general customers would not be able to participate in the pilot in the first stage, as the banks will enter the pilot with chosen customers. Following the first pilot stage, the Bank of Russia plans to determine how to scale the digital ruble further.
Potential Benefits and Drawbacks of CBDCs
Central bank digital currencies have the potential to offer several benefits, such as increasing financial inclusion, enhancing payment systems, reducing costs, and providing better access to financial services. They could also help combat illicit activities such as money laundering and terrorism financing by providing greater transparency and traceability. However, there are also potential drawbacks to CBDCs, including concerns over privacy and data protection, the risk of cyberattacks, and the potential for financial instability.
