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The Bank of Japan (BoJ) unveiled its central bank digital currency (CBDC) pilot project earlier this week. The experiment will analyze the viability of the virtual currency and consolidate efforts of other major central banks that are trying to match the blockchain-powered innovation and privately held cryptocurrencies.
In this pilot project, the Japanese central bank aims to build an initial environment for the CBDC network and conduct trials on basic purposes such as payment, distribution, issuance, and other related functions.
According to an official statement on Monday, April 5, this pilot phase is likely to be concluded by March 2022.
Earlier, the Bank for International Settlements (BIS) released a report on March 31, 2021, explaining how CBDCs could be a breakthrough initiative for central banks to provide blockchain-based advanced digital currencies. It could improve competition level, lower transaction charges, and promote innovation.
CBDCs and privately owned crypto coins might work together to create a feasible ecosystem to boost efficiency without weakening central banks' financial stability and monetary strategy. Major central banks across the globe are collaborating to execute this plan into practice, and BoJ is one of the leading members to launch CBCD pilot program along with China’s central bank. However, BOJ has not announced its plan to issue CBDC and initiated experiments before reaching any conclusion.
Global central banks are set to modernize their digital payment gateways, fight off the tough competition against cryptocurrencies, such as Bitcoin and Ether, and enhance their domestic and international transactions.
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According to the BoJ’s original CBDC framework, the bank expects to commence its third pilot phase, including payment platforms and customers on completion of the second phase of experiments.
The BoJ recently introduced an exclusive Liaison and Coordination Committee to join forces with private players on the upcoming CBDC experiments.
CBCDs To Prevent Frauds & Enhance Payment Security
Monetary policymakers expect to tackle any digital payment fraud through advanced technology powered CBDCs. Consequently, investigators should be able to use cyber tools to track the flow of payments used during a theft or hack.
As CBDCs are expected to be available on mobile wallet applications, and these mobile apps’ security might support prevent private data from online bullies. These security procedures will stop hackers from altering login screens of payment platforms that generally enable them to snip user identity and passwords and jeopardize assets worth billions of dollars.
