Do You Really Need a CBDC? Bank of Japan Said Not to Pursue Digital Yen

Are central bank digital currencies a solution looking for a problem? That seems to be what the Japanese believe, as it has been widely reported that the Bank of Japan has halted its potential pursuit of a digital yen.

Sayuri Shirai, of Keio University and a former policy board member of the Bank of Japan, wrote last month that:

Like many other central banks, the Bank of Japan (BOJ) has conducted Central Bank Digital Currency (CBDC) experiments since 2021 to test the technical feasibility of the core functions and features of a retail CBDC ecosystem. The second phase of testing began in April 2022. But the central bank is not considering its implementation in the near future. The purpose of the ongoing experiments is to catch up with new technical features involving blockchain technology if the need for a CBDC arises. There are three main factors that hamper the BOJ from actively considering the implementation of a digital currency…

Shirai states that digital money is already widely utilized so why create something the Japanese don’t really want and may not need?

The Bank of Japan’s most recent report on CBDCs stated that in the end it will depend on public demand:

“Opinions such as, “Even if CBDC is introduced, it will not be fully utilized unless the public understanding is gained, including its necessity, as a basic infrastructure suitable for a digital society,” and “It is necessary to build a consensus that the introduction of CBDC will bring positive added value to society as a whole, in parallel with institutional arrangements.” were raised at the Liaison Committee. The BOJ will continue to make necessary preparations and external communication, while keeping these points in mind. Through these efforts, we expect the circle of discussion on the future of Japan’s payment and settlement systems will be expanded.”

So while the concept is not really completely dead yet, the Japanese appear to have hit the pause button while it continues to review blockchain technology.

Meanwhile, some digital currency advocates believe that stablecoins are the future of fiat. Privately issued and managed but regulated by public authorities. More akin to credit card payment rails, but faster and less costly than existing networks. In the US, the US Federal Reserve has indicated its willingness for a two-tiered system where interbank money transfers are handled via a CBDC while consumers use dollar-backed stablecoins.

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