[NEWS] Government and Bank of Japan hold liaison meeting to prepare for introduction of digital yen

On the 26th, the government and the Bank of Japan held their first meeting to discuss future issues regarding the digital yen, which is equivalent to Japan's CBDC (central bank digital currency). They confirmed their intention to sort out legal issues and other issues for each relevant institution.

However, the government and the Bank of Japan explained that they have "no plans to issue the digital yen at this time."

Around the world, China has issued a pilot version of the digital yuan, and the European Union (EU) is in the process of finalizing legal arrangements for the issuance of a digital euro. Therefore, some say that Japan needs to quickly advance the establishment of regulations regarding CBDC so as not to fall behind the rest of the world.

Prior to this meeting, a panel of experts from the Ministry of Finance compiled a summary of the issues in December last year. At that time, it was assumed that the digital yen would be used for payments anytime and anywhere using a smartphone or other device, just like physical currency or paper money.

The summary of the issues stated that "if it is decided to introduce it, we will make further details so that it can be issued without delay." Some analysts predict that by 2025, 40% to 50% of the population will be cashless.

Consider holding limits to prevent adverse effects on existing finance

The key points of the expert meeting are as follows:

• Consider limiting holdings to prevent adverse effects on the financial system due to a shift from deposits
• CBDC will complement cash and private digital payments, allowing for smooth exchange
• Intermediary institutions will specify the purpose of use before obtaining personal information and transaction information
• Request the Bank of Japan to design it so that it does not obtain as much information as possible and to anonymize it
• The government will allow information to be applied in response to fraudulent use, etc.
• Request the government to further specify the system so that it can be issued without delay if it is decided to introduce it

If the decision is made to issue it, it is possible that the sudden change from cash deposits will have an impact on the current financial system. In order to prevent such adverse effects, it was also stated that limits on holdings should be considered.

The government and the Bank of Japan have not changed their policy of continuing to supply physical cash as long as there is demand. They have clearly stated their basic policy that digital yen is mutually complementary to cash. They stated that private intermediary institutions such as banks will be responsible for the transfer of digital yen.

It also states that, as a prerequisite for ensuring user choice and improving convenience, it is necessary to design the digital yen so that it can be smoothly exchanged for cash, deposits, and private electronic money.

As the movement toward the introduction of CBDC accelerates overseas, opposition to it is growing in the United States due to concerns about privacy violations, etc. Former President Donald Trump, a leading Republican candidate in the U.S. presidential election, has also maintained his stance of firmly blocking the issuance of CBDC if re-elected.

In Japan, ensuring privacy, etc. is also an important condition for issuance. Intermediary institutions must specify the purpose of use before acquiring personal information and transaction information, and must design a system that prevents the Bank of Japan from obtaining the information.

On the other hand, it is also important for the government to clarify the purpose and target in order to prevent money laundering and terrorist financing, and to be able to receive information as necessary, such as measures against fraudulent use.

Reference:NHK,Ministry of Finance
Image: Shutterstock

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