Research on the issuance of digital currency by central banks is progressing around the world.
The Bank of Japan has set up a new department to deal with the issue and started full-fledged discussions. It has also begun joint research with five other central banks, including the European Central Bank (ECB). It is hoped that the Bank of Japan will hastily examine the challenges so as not to fall behind the global trend.
Central bank digital currency refers to money that is exchanged with electronic data instead of bills and coins. Unlike e-money issued by private companies, central bank digital currency is characterized by being able to be used anywhere.
If it spreads widely, the costs of storing, transporting and paying cash will decrease. It is expected to significantly streamline corporate management. Consumers would also especially benefit from faster payments and remittances. Since users do not need to touch cash, it is useful to prevent novel coronavirus infections.
If the system can be introduced smoothly, digitization of society will accelerate.
The government specified in its “Basic Policy on Economic and Fiscal Management and Reform” that it would look into feasibility tests for central bank digital currency, among others.
The U.S. Federal Reserve Board, which is not involved in the joint research, has also acknowledged the need for such study. It is important for the Japanese government and the Bank of Japan to repeatedly exchange information with other countries, including the United States.
What should be noted is China’s moves to start feasibility tests for issuing a digital renminbi.
China will initially use digital currency domestically, but there is a view that it will be used to provide financial support to countries involved in the “Belt and Road Initiative” that is intended to create a huge economic bloc. By issuing the digital currency ahead of other countries, China apparently aims to counter the dollar, the key global currency.
Sweden’s central bank has also started this kind of experiment, while the National Bank of Cambodia issued a digital currency on an experimental basis last year.
The digital sector is moving fast. If Japan’s response is delayed, there is a fear that it could be left behind all of a sudden.
On the other hand, there are many problems and challenges to be solved before issuing central bank digital currency.
In digital currency transactions, smartphones can be used. However, what about those who do not have smartphones? What should be done to establish a system that can be used in the event of a loss of power sources due to a disaster such as an earthquake?
If payments are made electronically, there is a possibility that all the transaction information could be held by the Bank of Japan. Consideration for privacy will be a major issue.
It has been pointed out that if central bank digital currency takes root, large amounts of bank deposits will be transferred, putting pressure on banks’ management. What influence will the digital currency have on the entire monetary system? Preparing for cyber-attacks is also important.
The Japanese government and the Bank of Japan need to deepen discussions on measures to be taken in various possible cases in cooperation with private companies engaged in the technological development of digital currency.
— The original Japanese article appeared in The Yomiuri Shimbun on Aug. 6, 2020.