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Japan, China and Russia move CBDCs forward

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(Kitco News) - Activity related to central bank digital currencies (CBDCs) continues to ramp up as Japan, China and Russia have all made announcements in recent days related to their progress.

The Bank of Japan (BoJ) released the transcript of the opening address that its executive director Shinichi Uchida gave at a CBDC committee meeting on Thursday. During his speech, Uchida announced that the BoJ has decided to launch the next phase of its pilot program for the digital yen in April, once the proof-of-concept (PoC) testing that began in 2021 is complete.

“The aim of the pilot program is twofold: first, to test the technical feasibility not fully covered by the PoCs, and second, to utilize the skills and insights of private businesses in terms of technology and operation for designing a CBDC ecosystem in the possible event of social implementation,” Uchida said.

The 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, we plan 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,” Uchida said. “On this basis, we plan to test the end-to-end process flow and outline the measures and potential challenges for connecting the experimental system with external ones.”

The BoJ director noted that all transactions are experimental in nature and no actual retail transitions will be made during the pilot, only simulated ones.

Uchida also highlighted the fact that the issuance of a digital yen requires close collaboration between the government, private sector and end users, and warned that significant changes would need to be made in the financial system to accommodate its release and facilitate its adoption.

“This applies to each category of stakeholders involved in the process, including users, affecting all fronts – business conditions of financial institutions and of firms, and end users' daily lives,’ Uchida said. “It is therefore essential to develop institutional arrangements that would satisfy all parties involved, and proceed in line with this. The pilot program, which we are about to launch, is the first step of this process.”

China tests cross-border retail transactions

China, which is thus far leading the global race to release a CBDC, saw officials announce the launch of a retail-focused cross-border digital yuan pilot with Hong Kong, which began on Feb. 11. The People’s Bank of China (PBoC) is working in conjunction with the Luohu District local government for the pilot, which is being billed as a carnival with a token giveaway.

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.

CBDC Outlook 2023 - More than meets the eye

Russia to launch its first consumer pilot for the e-ruble

The Bank of Russia has announced that it will roll out the first consumer pilot for the digital ruble beginning on April 1, according to a report from the local news agency TAAS.

The announcement was made by Olga Skorobogatova, First Deputy Chairman of the Central Bank, who noted that 13 banks and several merchants will be participating in the pilot, which will involve real transactions and real consumers.

“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. “I’ll immediately draw attention to the fact that the pilot will go on real operations, real customers, but on a limited number of operations and on a limited number of customers with 13 banks that have already technically confirmed their readiness.”

The wider public will not be able to participate in the first stage of the test, and after its completion, the Bank of Russia will evaluate how the system performed to determine how best to scale the digital ruble.

Skorobogatova also noted that the 13 banks chosen for the project have all passed the technical and operational tests required to facilitate digital ruble transactions, and the next step will be for the selected users to begin interacting with the system on April 1.

Russia had originally planned to launch its consumer CBDC pilot in 2024, but moved up the timeline in June 2022 as it sought an alternative to the SWIFT payments system amid Western economic sanctions for the conflict in Ukraine. The Bank of Russia is also considering the launch of a gold-backed token in partnership with Iran that could be used to facilitate cross-border transactions.

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