coinculture.com
A consortium of Japanese megabanks are looking to trial a yen-based digital currency in 2022.
Japan next in line for a CBDC?
It almost feels like a scene from the Netflix hit Squid Game. Country’s are increasingly getting in line and voting on whether they are in favour of or against a central bank digital currency. The implications of that decision might indicate the macroeconomic policies that are to come.
After Nigeria came out as one of the first countries with a CBDC this year, and India plans to ban private cryptocurrencies in favor of a governmentally regulated version, Japan seems the next in line to opt for a CBDC. The decision of the consortium of 70 Japanese companies to trial a yen-based digital currency is pointing the way ahead for the country’s central bank. This new currency will be called DCJPY and will be backed by bank deposits to allow for large fund transfers and settlements.
Interestingly, the plan is led by DeCurrent, a cryptocurrency exchange. The consortium includes several Japanese powerhouses like:
- Banks Mitsubishi UFJ Financial Group, Mizuho Financial Group, Sumitomo Mitsui Financial Group, and Japan Post Bank Co Ltd.
- Nippon Telegraph and Telephone Corp
- East Japan Railway Co
- Kansai Electric Power Co Inc
Mitsubishi, Mizuho, Sumitomo, and Japan Post Bank feature among the country’s largest financial institutions, indicating that the outcome of this plan will most probably shape further policy action.
The Bank of Japan’s position
The country’s central bank has been supportive of the idea to launch a CBDC, subject to its technological feasibility. It said as much in a statement made by its executive Shinichi Uchida, who noted that the BOJ’s plans were still in the research stage.
Still, that vertical integration could happen if a CBDC design was simple enough. In practice, that would involve creating a framework allowing people to use the CBDC and electronic payment services from the same wallet to reduce friction. As a result, Uchida anticipates the private sector to adopt the CBDC and drive its integration.
Preliminary proof of concept studies by the BOJ began in 2021, and the country is expected to commence a second phase in Q2 2022. Likely, this will be influenced by or even integrated with the DCJPY project’s outcome, which feels like a test run for wider roll-out of an “official” CBDC.
CBDCs…next one please
With the Bank for International Settlements continuing its push for CBDCs and 110 countries reported to be looking into creating one, those favouring private cryptocurrencies seem well outnumbered. Still, how quickly CBDCs become a thing in developed countries like Japan, and how well countries can cooperate and coordinate with each other remains to be seen.
Widespread adoption of CBDCs could even lead to increased interest in privately-held crypto, provided adoption in countries like El Salvador can withstand the onslaught of criticism and uncertainty from legacy financial institutions. To stay with the Squid Game metaphor: the teams are slowly being cast, but the stronger-looking one may not be the winner by default.