Several leading Japanese banks, including MUFG, SMBC, Mizuho, and Japan Post are joining other domestic organizations to venture into the cryptocurrency space with plans to enable blockchain payments through a digital currency.
According to a White Paper published on November 24 by the organizations under the Digital Currency Forum, a consortium of 74 entities, the payment system will be a two-tier platform deploying a permissioned blockchain.
The currency’s provisional name is Digital Currency JPY (DCJPY). The DCJPY will use the blockchain distributed ledger technology and be backed by bank deposits. Users will make transactions in digital currency once they open an account.
The project which has passed the Proof-of-Concept (POC) phase was initiated by the DeCurret startup. The firm attracted a $62 million investment led by SMBC, MUFG, and SBI banks, which are also part of the consortium.
The project has also attracted government agencies, including the Financial Services Agency, the Ministry of Finance, and the central bank that will act as observers.
Commercial phase set for 2023
Among the lined up use cases will be to deploy the digital currency in supply chain systems with a planned rollout in 2023 targeting retail companies and their partners, according to November’s progress report. In this line, the consortium plans to carry out a PoC seeking to automate payment processing to enhance efficiency.
Additionally, the firms are planning to integrate the DCJPY with other digital platforms after the test run. The test run will explore the digital currency’s feasibility for low-cost business transactions.
“The Digital Currency Forum also envisions that digital currency, DCJPY will be able to connect organically with other digital platforms. In other words, the forum aims to realize a form of “Digital Payments as a Service” in which various economic activities and businesses can add payment and settlement functions,” the whitepaper states.
Users will request DCJPY, then withdraw money from their bank account and offer the tokenized cash. However, users can only transfer DCJPY to other account holders at the same bank for the initial stage.
Additionally, it’s not clear how the DCJPY rollout will impact ongoing efforts by the Bank of Japan to explore a CBDC. Notably, some Bank of Japan officials have previously indicated that they would work with the private sector to develop the CBDC.