On April 5, the Bank of Japan (BOJ) began the first stage of a three-stage demonstration trial of a central bank-issued digital currency (CBDC). For the purpose of the trial, a pseudo CBDC was issued via the computer to financial institutions to validate its basic clearance functions to users. Hitachi, Ltd. is involved in the first stage of the trial, which will take a year. The second stage is focused on security measures, and the third will involve private firms and individual customers. The date of the conclusion of all three stages of the trial has not been set.
The Japanese central bank is not necessarily committed to the actual issuance of a CBDC, however. Governor Haruhiko Kuroda and other top BOJ officials have repeatedly said that the bank has no plans to issue a CBDC at the moment. Behind this decision is the understanding that there is no great need for digital currency in Japan. The Japanese people’s confidence in cash remains strong, and cashless payment made up only 26.8% of all payments in Japan in 2019, which is lower than that of other nations, such as South Korea.
Digital currency poses a security risk as it could becoming a target of cyberattacks and fraud. If a major incident occurred after hastily introducing a CBDC, the BOJ would be held responsible. The purpose of the trial in Japan is more a safety measure in case the central banks of the U.S. and the EU change their policies on CBDC.
Furthermore, the Japanese government and ruling parties have not reached a consensus over CBDCs. Inside the Liberal Democratic Party (LDP), there are growing concerns that China’s “digital renminbi” will circulate globally, including in Japan. While the International Bureau at the Ministry of Finance is calling for action, the Financial Bureau, which oversees currency issuance, is cautious about issuing a Japanese CBDC. This indeterminate attitude of the government is partly responsible for the BOJ’s half-hearted approach.
In Japan, “digital currencies” tied to deposit accounts have been introduced in the private sector. The problem is that there are many different standards for the currencies, making it difficult to attract a large number of users. In March 2019, Mizuho Bank introduced “J-Coin Pay,” a clearing service using smartphones. Although 70 banks, including regional banks, are participating, there are still only a limited number of instances where customers have actually used the system. The Bank of Yokohama and Japan Post Bank have introduced the “Bank Pay,” developed by GMO Payment Gateway.
For private digital currencies to be used in a variety of settings, they must be compatible with each other. Currently, three megabanks and East Japan Railway are in a study group run by DeCurrent (Chiyoda Ward, Tokyo), a crypto-asset (cryptocurrency) exchange business, in an effort to develop such a platform.
If the government doesn’t formulate a national strategy on digital currency and the firms continue to busy themselves with petty turf wars, the Japanese economy will sink further. Both public and private sectors must redouble their efforts. (Abridged)
