This was posted in the Japan Times and covers the somewhat ubiquitous current topic of central bank digital currencies, for which we most recently commented vis-à-vis the Federal Reserve’s non-event discussion paper. In this case, we are referring to a digital yen to be potentially issued by the Bank of Japan, which is seemingly in a similar ‘research’ mode that we have seen from the Fed. The article covers some of the other CBDCs that have already been launched as well, including the Sand Dollar out of the Bahamas.
‘Some developing countries have already introduced CBDCs. The Bahamas is one of them, having issued the Sand Dollar in October 2020… The digital iteration of the Bahamian dollar is seen as a way to avoid the high cost of transporting bank notes and coins in the country, which consists of more than 700 islands in the Atlantic Ocean… The Central Bank of The Bahamas first launched the CBDC in 2019 after the extremely powerful Hurricane Dorian forced some banks in the country to close for more than a year, said Mika Shimizu, a researcher of the Japan External Trade Organization… The Sand Dollar has also been given offline payment functionality so that payments under a set amount are possible via smartphone app even if cut off from internet access…
In October, the Central Bank of Nigeria introduced its own digital currency, the eNaira, further suggesting that CBDCs are viewed as a useful means of payment for developing countries… Unlike Bitcoin and other cryptocurrencies, CBDCs are backed by some form of legal tender, such as the yen or the U.S. dollar, to legitimize their value, yet they only exist as data on electronic networks.’
The article goes on to briefly discuss some of the benefits associated with CBDCs and to some extent how the value of these transactions in developed economies cause an issue with payment history, something we have not encountered before in terms of issues and around which we will look for comments as we review input from various industry parties.
While developing countries may introduce CBDCs to compensate for an underdeveloped payment infrastructure, Japan has no urgent need for a digital version of the yen. But the country may have to join the CBDC game soon if it is put into practice all over the world. The BOJ therefore continues to research the field and seek the views of experts… The BOJ’s CBDC would need to have the same payment functionality as cash, according to Kazushige Kamiyama, director-general of the Payment and Settlement Systems Department at the Japanese central bank. “We will continue to provide money that can be used, with a sense of security, by anyone, anytime and anyplace,” Kamiyama said….
One of the major challenges in widespread CBDC usage in Japan and other developed countries is how to manage payment history, as the value and number of payments is often much larger than those in developing nations… The Bahamas has adopted blockchain technology for managing CBDC payment history. Given the huge financial transactions conducted in advanced economies, however, the management of payment records with blockchain is “still technologically difficult,” the BOJ’s Kamiyama said.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group