Recent comments by BOJ Deputy Governor Masayoshi Amamiya also illustrate this change in direction from the Bank. Though he was quick to reiterate that the BOJ has no immediate plans to issue a digital currency, Amamiya said it is important to examine any possibilities. He added that innovation is proceeding fast, and that depending on how things unfold, demand for a CBDC could soar in Japan.
In recent months, BOJ officials have been in talks with their counterparts at the Ministry of Finance and the Financial Services Agency on the potentials and challenges of digital currency.
Partners around the world
In last month's announcement, the BOJ revealed it would be working with the central banks of Canada, the UK, Sweden, Switzerland, and the European Union, alongside the BIS. The group says it will release a report by the end of the year that will be a compilation of assessments on the potential for CBDCs in their respective jurisdictions.
Experts and government officials who work closely with the BOJ say the Bank is responding to changes over the past six months in the digital currency landscape. Last summer, US tech giant Facebook announced plans to launch its own digital currency, Libra, which was warmly received by market players who liked the idea of a virtual currency that could be used across borders and offered low transaction fees. Experts say this positive reaction forced central banks to confront a question about their role in the future of finance: are they offering the best forms of currency from the perspective of the consumer?
Facebook's Libra announcement seems to have jolted China into life. The country has been exploring the creation of a digital yuan since 2014 but the government recently decided to speed up the process, in an effort to become one of the first major economies to adopt a digital currency. Experts say Beijing plans to spread the use of the digital yuan internationally using its Belt and Road Initiative.
The UK and Europe have also been spurred into action. Bank of England Governor Mark Carney gave a speech last summer in which he called into question the continued dominance of the dollar. Experts say his comments led central banks in Europe to consider a digital euro.
But on the other side of the Atlantic, US Treasury Secretary Steve Mnuchin struck a decidedly more placid note when he said the Fed saw "no need to issue a digital currency" in the "next five years." But experts say this could change quickly, especially if China launches a digital Yuan. In that case, the US may respond with a digital dollar.
Change in the tide
2020 could be a landmark year for the CBDCs. Sweden says it will start experimenting with the use of its e-krona. And China has announced it already has the technical capacity to launch its digital yuan. There is speculation the government will soon start a regional pilot case.
A recent BIS survey shows the extent to which CBDCs are gaining traction around the world. Out of 66 central banks polled, 10 percent say they are likely to roll out digital currencies within three years. 20 percent say they are likely to do so within six years, double the figure from last year.
Pros and cons
Experts say state-backed digital currencies save consumers time and money, and make it more difficult to launder money. But they also bring challenges. Central banks around the world will need to consider how to protect against cyber-attacks and prevent the misuse of personal information obtained from transaction records. The design of a CBDC system and how safely and effectively it can be used across borders will be critical in determining its success.
Both technology and the global power balance are changing at great speeds. It seems increasingly likely there will soon be a change in the economic landscape, which has seen the dollar's hegemony endure for over 70 years. With this in mind, it is crucial that we consider the future of money and prepare for the changes that are surely to come.
