Bank of Japan Expands Blockchain Settlement Trials, Advances Retail CBDC Pilot

The Bank of Japan (BOJ) is accelerating its blockchain experimentation for settling central bank reserves while continuing development of a potential retail central bank digital currency (CBDC), Governor Kazuo Ueda announced Tuesday. The move signals Japan’s growing commitment to modernizing its financial infrastructure through distributed ledger technology.

In a speech titled “The New Financial Ecosystem and the Role of Central Banks,” Ueda revealed that the BOJ has launched a new sandbox project to test settlements and bank deposits using central bank money on blockchain-based systems. The technical trials will focus on processing settlements through current account deposits held at the central bank, leveraging blockchain technology to enhance efficiency and resilience.

According to Ueda, the BOJ will also explore how blockchain networks can connect with existing financial systems. Use cases under review include domestic interbank settlements and securities settlement. Analysts suggest that integrating blockchain into reserve settlement could enable 24/7 instant transactions and reduce gridlock risks during financial stress events, strengthening overall market stability.

Alongside its wholesale blockchain initiatives, the BOJ continues to advance its retail CBDC pilot program. The project, which began experiments in 2021 and moved into a pilot phase in 2023, is designed to assess the feasibility of issuing a digital yen for the general public. While the central bank has not committed to launching a retail CBDC, it is expected to decide this year whether issuance is appropriate.

Ueda also highlighted Project Agorá, a global collaboration involving multiple central banks and major financial institutions. The initiative aims to develop tokenized central bank deposits on blockchain infrastructure, potentially transforming cross-border payments through faster and more streamlined transactions.

Unlike a retail CBDC intended for everyday consumer use, tokenized central bank deposits would serve as wholesale central bank money for financial institutions. Japan’s blockchain push follows similar moves by the U.K. and Hong Kong, which have already issued sovereign debt using blockchain technology.