TOKYO — The Bank of Japan (BOJ) plans to test whether blockchain technology can be used to settle central bank money between financial institutions, a move that could reshape how interbank payments are processed in the future.

Governor Kazuo Ueda confirmed the initiative as part of the central bank’s broader effort to explore distributed ledger technology (DLT) for financial market infrastructure.

The planned experiment will examine whether bank reserves held at the central bank—the balances commercial banks use to settle transactions with one another—can be recorded and transferred using blockchain-based systems.

Testing Blockchain for Central Bank Money

Under the experiment, the BOJ will explore whether interbank settlement using central bank reserves can be conducted on a distributed ledger.

These reserves form the backbone of Japan’s real-time gross settlement (RTGS) system, which processes large-value payments between financial institutions.

The testing environment will simulate whether blockchain can support:

• Recording reserve balances on a distributed ledger
• Real-time settlement between financial institutions
• Integration with the existing BOJ-NET payment infrastructure

The project will take place within a controlled sandbox framework, allowing regulators and financial institutions to experiment with new technology without affecting the live financial system.

Commercial banks and financial market participants are expected to participate to help simulate real-world settlement scenarios.

Not a Digital Yen

The central bank emphasized that the experiment does not represent the launch of a consumer-facing digital currency.

Japan continues to study the possibility of a central bank digital currency (CBDC) separately, but the current initiative focuses specifically on wholesale settlement infrastructure used by banks.

In other words, the project is aimed at modernizing the back-end systems that move money between financial institutions rather than creating a new digital form of currency for the public.

Why Central Banks Are Exploring Blockchain

Traditional interbank settlement systems rely on centralized databases and typically operate within limited time windows.

Distributed ledger technology could potentially introduce improvements such as:

• Continuous 24/7 settlement capability
• Faster transaction finality
• Reduced operational risk through decentralized verification
• Programmable transactions via smart contracts
• Greater system resilience

These potential benefits have led many central banks to study blockchain-based settlement models.

Part of a Global Push to Modernize Finance

The BOJ’s initiative reflects a broader international trend as central banks explore digital technologies to modernize financial infrastructure.

Research and pilot projects around the world include cross-border payment experiments such as Project mBridge and tokenized settlement initiatives supported by the Bank for International Settlements.

Authorities in Europe and Asia are also testing tokenized deposits and wholesale CBDC frameworks designed to integrate digital assets with traditional financial systems.

A Potential Shift in Financial Market Infrastructure

If blockchain-based settlement proves viable, it could transform the “plumbing” of global finance.

Large-value payment systems handle trillions of dollars in daily transactions, forming the backbone of financial markets and securities trading.

Experiments like the BOJ’s could help determine whether central bank reserves can be tokenized, enabling programmable financial transactions and more efficient settlement systems.

While still in an exploratory phase, the initiative highlights how central banks are preparing for a future where traditional monetary systems may increasingly intersect with digital and tokenized financial infrastructure.

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