The Bank of Japan (BoJ) stands as the latest central bank that has opted to officially draft a plan for a prospective central bank digital currency, or CBDC. In its plans, testing is set to occur as early as possible for the BoJ’s financial year of 2021, which is set to start in April.
Planning For Everything
In the report, aptly titled “The Bank of Japan’s Approach to Central Bank Digital Currency,” was released on Friday, and gave a comprehensive picture of the stance of the central bank when it comes to the launch of a prospective digital yen.
In the report, the BoJ explained that the move to develop a CBDC comes from motivations of keeping efficiency and stability within Japan’s financial system regarding settlement and payment systems overall. This is due to the bank considering it paramount to thoroughly plan a response for any change in circumstances, and having that response be appropriate for it.
Possible Economic Gain
As such, the report highlighted the possible need to issue a CBDC, especially if the cash in circulation saw a massive drop in the future, which needs to be compensated for. The report did stipulate, however, that the BoJ could deem it appropriate to issue a CBDC, even if the situation doesn’t mandate it, citing possible improvements to the settlement and payment systems of the country.
Even with this statement, the BoJ was quick to make it perfectly clear that, as of now, there is no plan for the BoJ to publicly issue out a CBDC. It did not, however that preparation is key when it comes to responding to a change in circumstances, showing that the Japanese Central Bank is more keen on having its economy be stable than to innovate with CBDC, in particular.
A Fintech Arms Race
With this move, the BoJ stands as one of many other central banks that have officially launched testing projects for CBDCs. France, South Korea, and Sweden are but a few of the countries currently in the development of a digital fiat currency. However, it should be noted that the People’s Bank of China (PBoC) stands in a clear lead. The Chinese central bank had managed to finish the development of its CBDC, which it calls Digital Currency, Direct Payment (DC/EP), and is currently in the process of mass testing it.
Alongside this, the BoJ stands as a leading member of a central bank consortium that is currently in the process of study. This consortium is determining the feasibility of launching a CBDC, and has recently given out a report that showed the benefits of digital currencies in regard to monetary policy implementation.