PAYMENT AND SETTLEMENT OF BANK OF JAPAN IN CBDC- NIRMAL CHAUDHARY

 

PAYMENT AND SETTLEMENT OF BANK OF JAPAN IN CBDC

 

INTRODUCTION OF CBDC - 

Central Bank Digital Currencies (CBDCs) represent a significant leap in the digital transformation of finance, powered by advances in technology and digitization. They are rapidly evolving, with central banks issuing and regulating digital money as legal tender, introducing enhanced security measures to protect customer assets. CBDC adoption signifies a shift toward a more efficient and secure financial system. Japan's central bank plays a pivotal role in ensuring that digital currencies hold the same legal status as physical cash. However, this transition is not without challenges. In light of the international nature of digital currencies, the operation of cross-border transactions requires careful regulatory coordination. Cybersecurity is a paramount concern due to the need to safeguard digital infrastructure and protect financial assets. Additionally, the digital revolution has reduced the reliance on physical banks branches, making financial services more accessible, particularly in remote areas. As we delve further into this blog, we will explore the major challenges, focusing on cybersecurity and the need for international cooperation in cross-border transactions faced by the country like Japan. We will also highlight the strengths and innovations that allow countries like Japan to address these challenges, propelling economic growth through the integration of CBDCs.

·       PAYMENT AND SETTLEMENT OF BOJ-  The introduction of central Bank Digital Currency in Japan would likely have a major impact in this banking system before CBDC, where masses have to go manually at bank to do their payments. Moreover, there are two types of secure and convenient settlement assets such as Banknotes and Deposits. In banknotes, which are namely used by individual to see banknotes and coins and also in second hand deposits are used by financial department. These to two system are very safe and secure to do their payment in central bank of Japan.

Figure 1. Operational Overview

 

·       FASTER SETTLEMENT-   In real time settlement system, the conventional method is very delayed. The bank is decide to take step to improve their speed up by implement central bank of digital currency. By eliminating delay of traditional system and this can help to do a instant settlement of transaction by using varied online banking system. For example, if he or she can do payment by using mobile or laptops and also do not have to go to bank manually.

A Also, there are couple of application such as Pay pal, WISE, and Sony bank. These applications are available for 24/7 for people and allowing for continuous settlement not only in working days but also in weekends and holidays. This is very different to traditional settlement systems with limited operating hours.

 

·         REDUCED COUNTERPARTY RISK- The Bank of Japan aim to curb counterparty risk in derivatives transactions through margin transfers by means of centralized exchange and mutual credit support annex. Furthermore, banking system is going through some security steps to improved their payment system such as OTP, email and calling system for verification. Financial institution transactions are managed within the limits of the creditworthiness of the counterparty. If anyone can do transaction with operating companies and other customers are managed within the framework of major risk management for fluctuation risks, and whole measurement of credit valuation adjustment are totally based on accounting standards.

 

·       INCREASED ACCESSIBILITY-   The main aim of Bank of Japan is to provide official website for everyone and this website are easily available for every masses, allowing the elderly people who are facing with disabilities. The human with disabilities to use the information and service at their door step without any difficulty because online system help them do their payment with ease with proper security. Apart from that web pages are easy to read, the colour of the text contrasts adequately with the background colour. The important announcement are on the main page of bank website for the customer and also various files such as PDF files provide the data size so that downloading time can be estimated.

 

 

·       IMPROVED CROSS-BORDER TRANSACTIONS-   It is desirable to ensure that CBDC could be used for cross- border payments – not only for domestic payments- while thoroughly monitoring developments in each central bank. Mostly the bank will continue to make useful preparations to responds to changes in circumstances in an adequate manner. There are some experiment taken by Bank of Japan with first test the technical feasibility of the core functions and features required for CBDC through a proof of concept(PoC). It will then consider the need for a pilot program if necessary.

 

·       LOWER TRANSACTION COSTS-   CBDC would be less costly for people than cash, the paper, while for merchants it would be much cheaper than cash and cards because the central bank would not charge for any transaction fees by doing digital banking. Also he or she can use digital banking anywhere, anyplace, and anytime is useful network for consumer. At some place, they are not putting any transaction cost by doing transaction one country to another country.

 

 

·       CONCLUSION- The bank also carefully monitors and assesses the safety and efficiency: Design, Risk management, Operation of payment, Settlement systems. This provided by institution other than the bank, and induces them to surpass their method if necessary. These forms of central bank ventures are referred to as oversight and the bank conducts cooperative oversight activities for the relevant cross-border payment and settlement systems in cooperation with other central banks concerned. Moreover, the bank engaged in the different committee on payments and market infrastructure, a central bank forum to discuss various policy issues and to develop internationally recognized standards on payment and settlement systems.

 

 

   REFERENCE LIST

-        Bank of Japan. (n.d.). The Bank of Japan’s Approach to Central Bank Digital Currency : 日本銀行 Bank of Japan. [online] Available at: https://www.boj.or.jp/en/about/release_2020/rel201009e.htm.

-        Development Bank of Japan Inc. (n.d.). Risk Management | Sustainability. [online] Available at: https://www.dbj.jp/en/sustainability/effort/foundation/risk_management.html [Accessed 3 Nov. 2023].

-Bing. (n.d.). payment and settlement systems JAPAN BOJ. [online] Available at: https://www.bing.com/images/search?q=payment+and+settlement+systems+JAPAN+BOJ&form=HDRSC4&first=1 [Accessed 4 Nov. 2023].

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