Rather than endorse cryptocurrencies like Bitcoin and Ethereum, many governments are seeking to launch their own central bank-backed digital currencies (CBDC). Japan is the latest to join the race.
The Bank of Japan (BOJ) announced on Monday that it would start experimenting on its CBDC. In phase 1 of the experiments, the apex bank will focus on testing the basic function of the digital asset as a financial instrument, particularly in the areas of issuance, distribution, and redemption.
The first phase of the experiments will last until March 2022. Upon completion, BOJ will proceed to Phase 2, which seeks to test more elaborate functions of the digital asset. If needed, the bank will proceed to a third phase, in which end-users and private businesses will be called upon to test the pilot program.
Shinichi Uchida, the bank’s executive director, said last month that there were no current plans to launch a CBDC in Japan. However, they were getting prepared in case the need arises. He explained:
We believe that initiating experiments at this stage is a necessary step," Uchida said at the time. "Given the current factors at play, including technological developments at home and abroad, there is a reasonable possibility for CBDC to provide a means of payments and settlements and for such systems to become global standards.
The narrative in several crypto circles is that governments would try to launch CBDCs as contenders to decentralized cryptocurrencies in order to retain their control over financial markets. Billionaire Ray Dalio is one of those who have repeatedly sounded the alarm that governments would move to kill cryptocurrencies.