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Following Japanese investment and leadership in Cambodian and Laotian digital currency projects, Papua New Guinea has become the latest Asian country to move towards a Japan-built central bank digital currency (CBDC).

The Bank of Papua New Guinea (BPNG) has  the completion of a proof of concept (PoC) study that explored the potential of a CBDC launch.

Last week, BPNG governor Elizabeth Genia presented the findings of the study for the first time, thanking the Japanese partners of the PoC for their “invaluable” support.

During the PoC, the Papuan central bank worked with Japanese blockchain technology provider Soramitsu and financial conglomerate Mitsubishi to test CBDC transactions in a controlled environment.

The Papuan central bank simulated the core functions of CBDC issuance, and completed transactions with the Japanese International Cooperation Agency (JICA), as well as the Japanese Embassy.

The simulation focused on transactional security, with a view to scaling up towards a broader CBDC pilot in the near future.

“Today marks an important milestone in exploring the potential of innovations in digital currencies that have attracted so much interest globally, and will unquestionably have an influence on the future of our nation’s financial system,” said BPNG governor Genia.

Financial inclusion potential

The BPNG said it pursued the study due to the potential of CDBC to provide rapid advancements in digital payments infrastructure and financial inclusion.

Genia said a CBDC has the potential to reduce the country’s reliance on cash while lowering the costs associated with cash handling and distribution, and improving efficiency.

“By offering a digital payment option accessible to individuals and businesses in both urban and remote areas, a CBDC could play an important role in bridging the financial inclusion gap in Papua New Guinea,” she said.

With a population of 5.6m and a territory that is 75 percent rainforest, the logistical barriers to the country’s mostly cash economy are significant.

Moreover, around  of the population works in subsistence or semi-subsistence agriculture, with surpluses sold for cash.

Genia also noted that, as internet penetration continues to grow, a CBDC may be able to better protect the country’s payment system from counterfeiting and fraud.

Going forward, the BPNG will work towards introducing a “well-defined policy framework” that will allow public- and private-sector entities to continue to experiment with digital currencies.

“The study represents an important first step, but it is only the beginning,” said Genia. 

“Further studies would need to broaden the scope to engage more financial institutions, and explore cross-border payments with neighbouring countries.

“These efforts would have to be guided by a clear roadmap that balances the significant technological advances with the necessary legal, regulatory and infrastructure considerations.”

Japanese influence in APAC CBDC push

The model of Japanese technology provision, combined with Japanese government support, has also been adopted by other APAC countries that have launched or are pursuing CBDC.

In 2019, the National Bank of Cambodia piloted , a digital ledger technology-based (DLT) payment system designed by Soramitsu, which was launched in full in 2020.

Soramitsu describes Bakong as a “next-generation real-time gross payments system” that promotes financial inclusion through a user-friendly iOS or Android app.

“The Bakong CBDC is a secure alternative to paper bank notes designed to function within the parameters required by the banking system,” said Soramitsu.

“Using a secure and standardized digital currency as a means of payment can increase trust and confidence in the payment system.”

In 2021, Soramitsu was also given the green light by the Japanese government to conduct a feasibility study for a potential CBDC in Laos known as the .

The study was followed by a memorandum of understanding (MoU) on a PoC that would be carried out by Soramitsu and the Laos central bank from February 2023 onwards.

The PoC, which is still ongoing, will see the Laos central bank issue CBDC to a commercial bank, which credits it to a consumer, who then uses it to make retail payments to a store, which then deposits the CBDC back into a commercial bank.