Japan expects to have more clarity on its digital yen’s technical and design features by late 2022, said Hideki Murai, head of the Liberal Democratic Party’s panel on digital currencies, Reuters reported.
This coincides with the Bank of Japan (BoJ) plans to complete its first phase Proof of Concept (PoC) for a central bank digital currency (CBDC) in May 2022. The BoJ is currently exploring the technical feasibility of a digital yen.
New details of the currency’s design may shed further light on how a CBDC issuance could affect the country’s financial institutions. Japanese domestic banks hope that further information will include themselves as the intermediaries between the Bank of Japan (BoJ) and deposit holders.
A key topic of discussion involves the monetary sovereignty of the digital yen. There is concern that China’s digital yuan could creep into Japanese society if it can offer fast, cheap and reliable payments.
“If a digital yuan becomes so convenient it’s frequently used by tourists or becomes a main settlement means for trade, the relationship between the yen and yuan could change,” said Murai.
Meanwhile, Japan has been leading explorations into how a CBDC might work offline. Domestic retail payments are currently dominated by cash which is relatively resilient during times of crisis. The potential downside of a digital currency is what might happen if the systems go down during natural disasters such as the 2011 tsunami. Hence a key design requirement for a digital yen is the ability to execute payments offline.
Like many other central banks, the BoJ hopes a CBDC will support growing digital societies. Last week, China launched two new pilots for its digital yuan focusing on green travel and carbon emission reductions. Russia is taking a different approach and is concerned about high bank concentration if they issue stablecoins which may crowd out competition.