TOKYO: Late next year, Japan will have a better idea of what a digital yen might look like, according to a politician in charge of the ruling party’s digital currency proposal, potentially igniting a turf war between traditional lenders and internet platform owners. In April, the Bank of Japan began the first phase of its central bank digital currency (CBDC) experiment, joining a growing number of counterparts attempting to keep up with the pace of private innovation.
Next year, it expects to move on to the second phase, which will define several fundamental tasks of a digital yen, such as which businesses will act as middlemen between the BOJ and deposit holders.
In an interview with Reuters on Friday, Hideki Murai, the head of the ruling Liberal Democratic Party’s panel on digital currencies, said, “By about the end of next year, we’ll have a clearer understanding of what Japan’s CBDC will look like.”
While there will be no immediate decision on whether to issue a CBDC, he believes that more information on its design will spark discussion about how CBDC issuance might influence financial institutions.
This could put the BOJ’s claim that a digital yen will not crowd out or interfere with private firms to the test, according to Murai.
Non-bank shops are beginning to offer numerous online settlement methods, invading the territory of commercial banks, causing enormous disruption in Japan’s financial market.
If CBDC is constructed in such a way that commercial banks serve as crucial intermediaries, Murai believes that business and data will be shifted away from platform providers and back to banks.
“It would have a major impact on financial institutions and Japan’s settlement system if the BOJ issued CBDC,” Murai added. “The CBDC has the ability to dramatically transform the financial industry in Japan.” Murai also stated that the BOJ must ensure that a digital yen is compatible with the CBDCs of other industrialized countries, in part to counter China’s rapid progress in releasing a digital yuan.
The BOJ is part of a group of seven major central banks studying CBDCs’ basic characteristics.
“The connection between the yen and the yuan could alter” and erode the yen’s standing as a safe-haven currency, Murai said, if a digital yuan becomes so convenient that it is often used by visitors or becomes a key settlement means for trade.
(Leika Kihara and Kentaro Sugiyama contributed reporting; Sam Holmes edited the piece.)
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