Published: January 27th, 2020
Government keen not to be left behind if China issues digital yuan.
The move follows the launch of digital currency by Japan's largest bank, last Summer.
Part of a joint-initiative by five other central banks including ECB, BoE, and Canada.
With Facebook’s Libra cryptocurrency set to arrive later this year, policymakers around the globe are taking digital currencies very seriously.
Several central banks are looking at the viability of issuing their own digital coin, with China first out of the gate with the coming launch of ‘digital yuan’.
Others are following suit, and it looks like Japan maybe next to announce a Central Bank Digital Currency (CBDC). A report from Reuters says a group of 70 lawmakers from Japan’s ruling Liberal Democratic Party is working furiously on a CBDC proposal.
A statement by the parliamentary vice-minister for foreign affairs, Norihiro Nakayama, suggests the new coin could be a private-public initiative between the government and a consortium of private companies.
“With China’s move toward a digital yuan, we should consider measures to counter it,” he told Reuters, adding that the group plans to submit its proposal to the government as early as next month.
Prime Minister Shinzo Abe also told parliament that the government would work with the Bank of Japan to consider national digital currencies, possibly as a means of increasing the Yen’s utility as a settlement currency.
Adding to the momentum, Bank of Japan joined the central banks of Canada, the UK, ECB, Sweden, and Switzerland in a cross-border initiative to explore digital currencies.
According to a recent survey from the Bank for International Settlements (BIS), central banks around the world have ramped-up efforts to explore digital currencies. More than 40 per cent have progressed from conceptual research to proofs-of-concept, while another 10 per cent have launched pilot projects.
Last year, Mitsubishi UFJ Financial Group (MUFG) announced plans to release a digital coin. The MUFG coin will be part of a mobile payments service and will be rolled out to bank employees first. It will be set to parity with the Yen and enable standard transactions, such as shopping or transfer of money between individuals.
Users will be able to convert cash held in their bank accounts into the MUFG coin. Anyone who received it in a transfer or as a form of payment will then be able to convert it to Yen or any other currency their account is denominated in.
Users will have to create wallets to use the cryptocurrency, and MUFG will handle transaction processing internally. Mitsubishi UFJ Financial conducted tests to roll out the coin in 2016 and signed an agreement with Coinbase’s GDAX crypto exchange last year.
While banks have been notably reluctant to embrace cryptocurrencies in the past, Facebook’s move into the space has added legitimacy, alongside fears of being left out if the social media giant manages to carve out a sizeable chunk of the global payments market as a result.
Banks are now moving towards acceptance of established coins like Bitcoin for everyday transactions while developing their own digital currencies or adopting the underlying technology to improve their operations.
Six banks, including MUFG, have joined UBS Bank’s Utility Settlement Coin (USC) consortium. Major financial services firms including Nasdaq, Barclays, and UBS have put ca. £50 million into the venture. USC will be an asset-backed digital cash instrument implemented on blockchain technology.
According to reports, another Japanese consortium of banks led by Mizuho Financial Group is working to develop a cryptocurrency, known as J-coin, in time for the Tokyo Olympics in 2020.
Japanese exchanges and investors have long played a central role in driving cryptocurrency valuations upward. Japan, along with South Korea, accounts for a majority of trading volumes in the big cryptocurrencies: Bitcoin and Ethereum.
Korean and Japanese banking consortiums are also collaborating with Ripple to test money transfers using blockchain technology.
Reuters report comes after the People’s Bank of China (PBOC) announced that the "top-level" design of its proposed cryptocurrency had been agreed. Published in a bank white paper, policymakers said that the coin's standard formulation, functional research and development were all complete.
The head of the PBOC’s digital currency research institute said the focus would be on establishing "stability, security and control." The bank recently announced the currency was "progressing smoothly," per past reports.
In developing a Japanese CBDC, former BoJ board member Takahide Kiuchi said the country’s central bank would also look to avoid stifling private-sector innovation. "The best way could be to issue a hybrid-type digital currency that is operated and issued by private firms, with the central bank’s involvement,” he told reporters.
When Facebook announced its Libra project last summer, Japanese (and other national) regulators expressed concerns about the potential risks of the new coin. Soon after, the country formed a working group ahead of a G7 meeting in France to discuss the issues.