(Bloomberg) — The Bank of Japan said it aims to start early phase experiments next year on issuing a digital currency in order to be ready should demand for one rise quickly.
“From the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, the bank considers it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner,” the BOJ said in a report released Friday.
While the BOJ reiterated it has no immediate plans to issue a digital currency, today’s report suggests it is trying to keep up with peers including the People’s Bank of China, which has been studying the topic for years and in April gave the green light for some lenders to conduct internal, hypothetical-use tests of a digital yuan.
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Japan’s Finance Minister Taro Aso in February expressed concern over China’s ambitions and senior ruling party lawmaker said a digital yuan would be a challenge to the existing global reserve currency system.
Most central banks that have been looking at the issue of digital currencies are treating it with caution because the risks of getting things wrong are significant. Depending on the model of central bank digital currency, authorities risk either cutting out commercial banks, a vital funding source for the real economy, or assuming the direct risks and complications of being in the banking business.
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Even though cashless payments have been increasing, cash remains a dominant method for transactions in Japan giving the central bank little reason to rush to issue a digital currency.
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“However, if cash in circulation drops sharply in the future, it might be necessary to make up for the decrease by issuing a CBDC,” the BOJ said in the report. “Regardless of the situation, it might be determined appropriate to issue a CBDC to improve Japan’s payment and settlement systems.”
Newly appointed Prime Minister Yoshihide Suga has made increased digitalization a top priority for Japan’s government after its creaky systems hampered efforts to get stimulus payments out to residents during the pandemic.
The BOJ in July put its chief economist in charge of researching digital currencies after pledging to build up its expertise amid signs the pandemic could accelerate the use of cashless payments.
Chief cabinet secretary, Katsunobu Kato, speaking to reporters Friday, repeated the BOJ line that the bank has no plans now to issue a digital currency, but he said: “the issue is necessary to consider.”
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