The race to develop a Central Bank Digital Currency (CBDC) is on, with many countries looking to study plans to digitize their currencies and how it could affect their economic stability. However, one of the countries that appear to be at the forefront of that race is Japan.
CBDCs to Become a Part of Japan’s Economic Plan
Recently, the Asia Nikkei Review, one of the world’s leading financial news sources, reported that the Japanese government would consider a CBDC in its Honebuto Plan for Economic and Fiscal Revitalization.
Seen by many as Japan’s official economic model, the Honebuto Plan forms the basis of the country’s monetary and fiscal policy. As the Nikkei report explains, Tokyo will also work out how to include CBDCs in its economic future. The CBDC provision will also reportedly include possible paths to collaborating with other countries.
Japan has been feeling the immense pressure of CBDC adoption for months now. With China — one of its major trade partners and economic rivals — on the fast track towards creating a CBDC of its own, the government has been soliciting counsel on a possible seamless CBDC integration.
In March, Kozo Yamamoto, a Member of the House of Representatives for the Liberal Democratic Party (LDP) and a former official at the Ministry of Finance, explained to Cointelegraph that China’s CBDC progress had made it imperative for Japan to go in the same direction.
“If Japan doesn’t issue a digital currency and people in the world use other digital currencies, the Japanese yen will be forgotten and lose its sovereignty,” he said in part.
Global Pandemic? No Problem
In all fairness, the Japanese government understands this. A month before the interview, it had collaborated with six other countries to explore possible CBDC development.
At the World Economic Forum, the Bank of Japan and central banking representatives from Britain, the eurozone, Canada, Sweden, and Switzerland announced that they would create an advisory group. The group will study possible paths towards creating a CBDC that wouldn’t affect their monetary or financial policies. It was supposed to present findings at an April meeting in Washington. However, it appears that the coronavirus set it back.
Despite the pandemic, however, Japan is moving forward with the CBDC objective. Apart from including its Honebuto Plan, the Bank of Japan announced earlier this month that it would be proceeding with experiments for a possible digital Yen.
In a report titled “Technical Hurdles for CBDC,” the Bank explained that it was working towards digitizing cash. However, it wasn’t sure if its CBDC plans would catch up to China, as the latter had already started with tests for its digital Yuan in some regions.
The Bank stated that it would prefer to check the feasibility of a CBDC, especially from technical perspectives, before moving forward. As is with the government’s announcement, the agency also opened the door for collaborating with other governments and financial institutions.
So far, the Bank highlighted that there were some challenges with a possible CBDC — resilience in the case of electric power outage and accessibility to everyone. The agency also explained that it was considering whether or not to host the asset on a blockchain. A centralized asset will come with quick transaction speed and higher capacity, but it also faces possible system failures and outages.