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Japan takes steps towards creating a digital version of the yen

(ATF) Japanese legislators are saying they want to make a proposed “digital yen” as broadly appealing a concept as possible as they called for private-sector engagement, while policymakers have begun to more closely embrace the new currency.

The Bank of Japan plans to begin experimenting with its own digital currency, as the central bank keeps a wary eye on China as it steps up the pace of its “digital yuan” development and Japan’s ruling Liberal Democratic Party urges the BOJ to speed up the rollout.

“Japan should seek to maximise the potential a central bank digital currency (CBDC) can offer,” Hideki Murai, who oversees the party’s project team on digital currencies, told Reuters on Tuesday.

Kentaro Koyama, chief Japan economist at Deutsche Bank, said the digital currency project has advanced thanks to better policy coordination between the government and BoJ.

“Just after the government mentioned consideration of a CBDC in its basic policy outline in July, the BoJ established a new digital currency group within its Payment and Settlement Systems Department and announced in October a schedule for a CBDC,” he said.

Murai said the CBDC is not the only way to make digital settlements more convenient. “The key is to ensure CBDC doesn’t crowd out private businesses,” Murai said, adding the project team’s focus next year would be to get private companies more involved. “It’s important for private companies to understand what CBDC means to them, while policymakers must have a deeper understanding on what the private sector is doing,”

Standardising chaos

A digital yen would help standardise digital settlements in a country multiple cashless payment platforms incompatible with each other, say proponents of a digital currency.

“Japan has many digital platforms, none of which are big enough to beat cash payments,” Hiromi Yamaoka, a former BOJ executive who chairs a group of more than 30 companies preparing to begin experiments next year towards issuing a common, private digital currency, told Reuters in November.

Private banks will be in charge of issuing the digital currency in the experiments, though the possibility of other entities issuing a digital yen will not be ruled out, he said. Cashless payments making up only 20% of total settlements, compared with 45% in the US and 70% in China.

Analysts say the prospect of China’s new digital currency could inspire a “tectonic shift” in capital flows.

“It will be a blockchain-based digital version of the yuan,” said Steen Jakobsen, chief investment officer at Saxo Bank in Copenhagen. “The [People’s Bank of China] wants to take [digital currencies] one step further and in the process improve the efficacy of monetary and fiscal policy through an increasingly cashless society and with a goal of enhancing financial inclusiveness.”

“The stability of the Chinese currency and the built-in traceability and oversight that blockchain tech enables would virtually eliminate the risk of capital flight or illegal transfers out of China,” he added.

Portuguese flavour

Stephen Chiu, Bloomberg Intelligence foreign exchange strategist, speculated that Macau could even be a pilot zone for a digital yuan, “given China’s intention to turn Macau’s gaming-reliant economy into a financial hub, with possible initiatives like nurturing a yuan-denominated exchange that focuses on companies from Portuguese-speaking countries”.

The digital yen has been long in the making. In 2017, Mizuho Financial Group and Japan Post Bank said they would have a digital currency ready for the now-delayed 2020 Tokyo Olympics. They were part of a consortium of banks planning to launch the J Coin, an electronic currency to pay for goods and transfer money using smartphones.

The J Coin was planned be convertible into yen on a 1:1 basis, operating via a smartphone app and using QR codes to be scanned in stores. In return for providing the service for free, the banks would benefit by collecting more data on consumer spending patterns.

Japan would have to revise laws covering the BoJ’s mandate if it were to issue a CBDC.


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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.

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