Here are some of the basics about Japan’s plans.
1. The bank is just paving the way for a decision.
Central bank officials don’t believe they will have the final say on whether to issue a digital yen. They are expecting the government to make the call. The BOJ wants to lay the groundwork to explore the pros and cons, then allow the people’s representatives to make the final decision. The central bank also says a digital currency would not instantly replace cash, but would coexist with it. The BOJ says the amount of cash in circulation would not likely drop significantly, and it would keep supplying cash as long as there is public demand for it.
2. It’s not all about China, it’s about digitalization.
Many central banks, including the European Central Bank, have been accelerating their exploration of digital currency in response to China’s progress in the area. Japan’s ruling Liberal Democratic Party has been pushing the BOJ to speed up too. But some experts argue that a digital yen will not be enough to challenge the likely dominance of a digital yuan.
BOJ officials are looking at the rapid spread of digitalization around the globe and the effects of the recent global pandemic. They think their research should focus on how to develop a new form of user-friendly currency suited to a digital world.
3. The biggest hurdle is cybersecurity.
The BOJ would need to find a way to keep people’s money safe from cyberattacks, and that’s partly what the trials starting next year will be testing. But it’s expected to take years to create failsafe rules, even as China is pressing ahead. The government in Shenzhen recently ran a lottery to distribute 10 million yuan in digital currency.
4. The US is being cautious, for now.
The BOJ has been working with the US Federal Reserve and the European Central Bank to research the idea of digital central bank currencies. They plan to continue working together to exchange ideas and study challenges such as interoperability between different currencies and cross-border transactions.
The US has been initially cautious about the idea of launching a CBDC. But the fact that the Fed eventually joined the international research group shows Fed officials have some sense of urgency about the need to again consider the options. The question is whether China’s rapid progress will spur Washington to try to keep pace.
