On Friday the Bank of Japan and the Ministry of Finance held their first meeting to discuss a potential central bank digital currency (CBDC). The central bank is currently conducting a digital yen pilot, but no decision has been made regarding the launch. Last year, the central bank set up a separate CBDC Forum consisting of private sector representatives.
Friday’s meeting involved representatives from the Cabinet Office and National Police Agency. Observers from the Fair Trade Commission and the Personal Information Protection Commission also attended.
The Ministry outlined the need to ensure a CBDC can coexist with existing private sector digital payment firms, according to NHK news. Any CBDC needs to enhance payment convenience and protect privacy. There’s a fair number of legal issues to resolve as well.
A decision to launch will only be made after public discussion and may require a referendum, as previously reported.
The next meeting will explore specific challenges and how to address them.
Japan’s unique CBDC situation
Meanwhile, the Bank of Japan was one of the first central banks to explore CBDC, long before Facebook’s Libra triggered widespread interest. It previously collaborated with the European Central Bank (ECB) and others on research. The progress of the ECB with the digital euro and the advanced stage of China’s eCNY pilots may exert some pressure to progress with a CBDC.
However, it’s often said that each country is unique when it comes to CBDC, and Japan is no different. On the one hand, it still has a heavy dependence on cash. In our view, the biggest differentiator is the multiple private sector tokenized money initiatives, which is not the case in Europe or China.
For example, since 2020 a digital currency forum involving over 100 Japanese institutions and enterprises has been exploring digital currency. It plans to launch a DCJPY tokenized deposit solution this year. Separately, the MUFG-backed Progmat DLT platform has a Progmat Coin solution for stablecoins.