As central banks worldwide delve into the research and experimentation of digital currencies, it is imperative for the Japanese government and the Bank of Japan to closely monitor international developments, assess associated risks, and engage in thorough discussions about the necessity of adopting digital currencies.
The European Central Bank (ECB) recently announced its transition into the “preparation phase” for the digital euro issuance, planning feasibility tests and selecting a business operator to develop the system. If officially approved, the digital currency could be launched around 2028.
Digital currencies, converting money into electronic data for settlements and remittances, are expected to enable transactions through smartphones. While certain private company-issued electronic monies are already in use, digital currencies from central banks offer broader acceptance, akin to physical cash, allowing swift settlements and immediate payments to vendors.
Developing countries have taken the lead in issuing digital currencies. The Bahamas and Nigeria, among others, have already introduced central bank-issued digital currencies accessible to anyone with a smartphone, regardless of a bank account.
However, the momentum toward widespread adoption appears to be waning. China, after significant feasibility tests on the digital yuan, faced challenges due to the popularity of private-sector digital payment methods, hampering user understanding of the digital yuan’s benefits and leading to slow circulation. In the United States, President Joe Biden’s digital currency research and development initiative has encountered a stall in debate, largely due to Republican concerns about personal information protection.
While Japan, the United States, and Europe initially rushed to consider their digital currencies to counter the potential dominance of the digital yuan, the landscape has evolved. In Japan, a Finance Ministry expert panel initiated discussions in April, aiming to compile a report by year-end. The issuance plans are in the early stages, requiring careful identification of pertinent issues.
Concerns have been raised about the potential acquisition of personal information, including purchase histories, by central banks when individuals use digital currencies. The mass transfer of deposits from private banks to digital currencies could destabilize the financial system. Additionally, the risks of cyber-attacks and hacking need consideration.
To address these challenges, it is crucial for the Japanese government and the central bank to actively exchange information with overseas authorities and accumulate technical expertise. By closely monitoring international developments, Japan can make informed decisions and navigate the evolving landscape of digital currencies.
