Japan is mounting an effort to create a digital currency to remain competitive with other countries:
“‘China has prompted moves toward digital currency (around the world),’ said Hiromi Yamaoka, a former senior official in charge of payment and settlement systems at the Bank of Japan. ‘It (has done so at) surprising speed, as central banks tend to take a cautious stance’ for a new system, he added.
Yamaoka said he expects the Chinese central bank to officially issue the digital yuan by 2022, when it will host the Beijing Olympic and Paralympic Winter Games.
He is also pushing to issue a private-sector driven digital currency, currently chairing the “Digital Currency Forum” in Japan, which started a joint study for developments with around 30 major companies including Japan’s three megabanks of MUFG Bank, Sumitomo Mitsui Banking Corp. and Mizuho Bank.
In the fall, news reports of an emergence of a couple of digital currencies stunned the financial world. In October, central banks of the island state of Bahamas in the Caribbean Sea and Cambodia in Southeast Asia started to issue their CBDCs named “Sand Dollar” and “Bakong,” respectively.
“We are seeing a once-in-a-millennium change in the history of currencies after the long-time use of currency notes following the world’s first introduction in China about 1,000 years ago,” said Masashi Nakajima, a professor at Reitaku University and a former BOJ official.
Nakajima said advances in technology including blockchain to counter cyberattacks and counterfeiting have largely contributed to the realization of digital currencies while people are now able to bring utilize their smartphones to use CBDCs anywhere at any time.
Major central banks including the BOJ, the U.S. Federal Reserve and the European Central Bank as well as the Bank for International Settlements released a joint report in October, saying the group of central banks will collaboratively explore potential promotion of innovative payments.
“A CBDC could be an important instrument for central banks to fulfill their public policy objectives and to evolve in step with the wider digitalization of people’s day-to-day lives,” it added, but no major central banks have yet officially decided to introduce a CBDC.
The BOJ has said it will launch a feasibility study on its digital currency in fiscal 2021 starting in April. “The bank considers it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner,” it said in a separate report.
“Demand (for a CBDC) could be suddenly strong. We aim to be prepared well to respond to changes in our environment,” BOJ Governor Haruhiko Kuroda told business leaders in Osaka in September when asked about digitalization in Japan’s payment systems.
But the BOJ is likely to take some years to decide whether to officially issue its digital currency, as are other major central banks.
“The design of a CBDC is very tricky and delicate,” Yamaoka said. “In advanced countries, a CBDC could conflict with existing payment and banking systems.”
For example, the credit card business could lose ground if consumers and retailers prefer CBDCs, which do not request application forms or commission fees.
Commercial banks could face “disintermediation” with a lower amount of deposits if people are inclined to hoard more CBDCs for convenience by converting money from their bank accounts, leading them to have fewer funds to lend money to companies and be reluctant to do so, experts said.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
