The Ministry of Finance and the Bank of Japan met last week to discuss the launch of a central bank digital currency (CBDC). Several representatives from various agencies were present, including the Fair Trade Commission, the Personal Information Protection Commission, the National Police Agency, and the Cabinet Office.
The Bank of Japan has taken a more cautious approach to launching a CBDC, announcing last February that it would begin a pilot program in April 2023 to test the use of a digital yen. During this pilot program, the Bank of Japan conducted simulated transactions with private banks within a controlled testing environment.
Concerns surrounding the launch include privacy of data. Some fear that the introduction of a CBDC could facilitate government surveillance of individuals’ financial transactions. Other critics argue that the launch of a CBDC could have negative implications for financial institutions, potentially diminishing their relevance within the broader financial system.
“Japan, like other countries in the G7 and/or G20 are exploring all potential routes and options for a CBDC,” said Joel Hugentobler, Cryptocurrency Analyst with Javelin Strategy & Research. “The Japanese Yen plays an integral part in the global monetary and trade systems so this is something they don’t want to rush into per se.”
“Japan is the 2nd largest holder of U.S. government debt (bonds), and as a surplus nation (i.e., net exporter) there are additional implications they’re reviewing/researching in which monetary policies can be affected worldwide. They’re taking baby steps in this direction but they appear to be on the path that they would rather get this right, rather than being “first” to the market and having to fix any issues – whether they be small or significant – later on,” he said.
Preparing for CBDCs
Amid the growing digitalization of economies, countries like Japan are racing to explore and develop CBDCs. In fact, 130 countries are considering launching digital versions of their currencies, with nearly 50% of them in the advanced development, pilot, or launch stage.
Launching a proprietary CBDC offers numerous benefits, including facilitating faster and more affordable cross-border payments. CBDCs can also boost financial inclusion through digital wallets and reduce money laundering crimes.
Just look at Singapore’s CBDC efforts, which have been traced back to 2016. Singapore has been testing the use of wholesale CBDCs on distributed ledgers to facilitate real-time cross-border payments, as well as settlements with central banks.
But not everyone is buying into the hype. Canada has remained unfazed, preferring cash, according to a survey conducted by the Bank of Canada and Forum Research. Roughly 93% of respondents reported using cash in the last month. In contrast, 69% said they used their credit cards. So, although Canadians had heard the concept of a digital Canadian dollar, they prefer cash as it “has a sense of safety and anonymity around it.”
