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The danger of Digital Yuan upsetting Yen position as a safe-haven currency
- Japan’s Finance industry is waiting for digital yen
- BOJ is still working on digital yen
- CBDC can affect changes occurring in Japan’s financial sector.
As the cryptocurrency boom spreads, more and more nations scramble to get their digital currency on board. China has already started work on its Digital Yuan, and Japan’s Finance industry is waiting to see how quickly they could see the realization of the digital yen. The digital yen must rub shoulders with neighboring giant, China which is racing ahead to create a digital yuan. However, according to sources, it will take a couple of years, not before 2022; we would have a clearer picture of the digital yen.
BOJ is still ironing out the key functions of the digital yen
Hideki Murai heads the ruling Liberal Democratic Party’s panel on digital currencies. Murai, in a Reuter’s interview on Friday, contended that BOJ is still ironing out the key functions of the digital yen. These functions include defining what entities would serve as intermediaries between the central bank and deposit holders.
Murai added that a clearer picture would emerge by the end of 2022. The second phase of CBDC testing is slated to start in early 2021, and BoJ is not expected to make an immediate decision on whether to issue a digital yen. The official, however, added that talks about the CBDC design would ultimately create a bigger debate about how the digital yen will affect the present financial infrastructure.
The land of the rising sun and its financial sector are already in a state of flux and are undergoing a major change. Today digitization has entered the financial segment in a big way, and non banking firms offer new means of digital online settlement. However, Murai said that if the structure of the digital yen is such that it makes commercial banks key intermediaries, that shift could be reversed.
CBDC can reshape changes occurring in Japan’s financial industry
If the Bank of Japan did issue CBDC, its impact on the financial institutions and Japan’s settlement system would be immense. The economic system in Japan is in a state of flux, and CBDC has the power to reshape changes occurring in Japan’s financial industry.
China is racing ahead with its digital yuan, and it will have a very deep impact on the yen. BOJ must ensure that its Digital Yen is compatible with the other CBDCs being launched or are in the process of being launched by different nations. There has been a CBDC pilot project running in many countries, and the Digital Yen must not lag.
Murai warns that if the digital yuan becomes user friendly and is used widely by tourists or become a currency for settlement in trade, it will be a death blow for the yen and erode its status as a safe-haven currency,
The Bank of Japan started a process to develop a CBDC in October 2020. However, it has stressed that it will not issue any CBDC, at least not any time soon. The first stage of the CBDC pilot project was started in April 2021. The development touched various test environments and researched basic CBDC functions related to payment, issuance, distribution, and redemption.