Golden Finance reports that Japan has long been known for its “cash supremacy”. However, as the pace of digital currency development accelerates, the Bank of Japan is stepping up its efforts to keep up with this trend in response to the rapid transformation of domestic payment methods towards cashless.
According to Reuters, Japanese government data shows that the proportion of cashless payments in the country has risen all the way from 13.2% in 2010 to 42.8% in 2024. This achievement has reached the government’s target of 40% one year ahead of schedule, clearly demonstrating a significant shift in consumption behavior in Japanese society. Although Japan lags behind other major economies in terms of payment technology, the continuous growth of cashless transactions has prompted policymakers to accelerate their layout and actively prepare for changes in public payment preferences.
The issuance of central bank digital currency has become one of the key options. Although the Bank of Japan has not yet decided whether to launch a digital yen, it has initiated a pilot program since 2023 and is collaborating with the government and enterprises around its design and architecture. Last week, Kazunari Kamiyama, an executive director of the Bank of Japan, told the business community that although the current circulation of paper currency remains at a high level, against the backdrop of the accelerating digitalization process, the usage of paper currency is likely to decrease significantly in the future. He emphasized: “Japan must now plan ahead to ensure that the future retail settlement system is not only convenient and efficient, but also universally accessible and secure and reliable.”
Shinichi Uchida, the deputy governor of the Bank of Japan, also pointed out that digital currency is expected to become an important infrastructure supporting the future payment and settlement system. However, he added at the same time that Japan’s reliance on cash would not disappear in the short term. In fact, the Bank of Japan has been exploring the field of digital currency for a long time.
At the end of 2016, the Bank of Japan and the European Central Bank jointly launched a wholesale central bank digital currency (CBDC) cooperation project named “Stella”. Over the following four years, they successively completed four phases of trials. The content covers the operation of the central bank’s real-time full settlement system in the distributed ledger technology (DLT) environment, the conceptual design and operation of the confrontation between securities and funds, the possibility of improvement in cross-border payments with the help of new technologies, as well as the balance between confidentiality and auditability in the DLT environment, etc. The test results have confirmed the technical feasibility of applying DLT in the wholesale CBDC field. However, there are still many legal and compliance issues before it can become a large-scale application solution like a real-time full settlement system, which has also led to a slowdown in the Bank of Japan’s subsequent actions in this field.
It was not until Facebook released the Libra white paper in 2019 and China launched the pilot program of the digital RMB that the Bank of Japan began to be alert that private digital currencies might pose a challenge to the central bank’s currency issuance rights. The Japanese political circle was also worried that the international status of the yen was threatened. In February 2020, the Bank of Japan established a CBDC research team within the Clearing Institutions Bureau. In July, the report “Central Bank Digital Currency: A Technical Issue with the Same Function as Cash” was released, emphasizing that CBDCS need to meet the requirements of popularity and resilience. In October, a plan for retail CBDC was released. In April 2021, the first phase of proof-of-concept for retail CBDC was initiated, focusing on experimental analysis of the technical feasibility of the core functions of CBDC. In April 2022, the second phase of proof-of-concept was initiated. Based on the CBDC ledger system developed in the first phase, more complex additional functions were constructed to explore its technical feasibility and potential impact on the system’s processing performance.
In terms of private digital currencies, Japan initially adopted an open and inclusive attitude towards crypto assets, supporting their trading on exchanges and allowing them to be used as legal payment methods. In 2017, it once became the world’s largest trading market for Bitcoin. However, as risk events occurred frequently during the development of the crypto market, such as the bankruptcy of the Bitcoin trading platform Mt.Gox in 2014 and the hacking of the virtual currency trading platform Coincheck in 2018, the Japanese regulatory authorities promptly revised the regulations. The Congress successively passed amendments to bills such as the “Funds Settlement Act” and the “Financial Products Exchange Act”, and was the first to implement a registration system for traders. Subsequently, “virtual currency” was renamed “crypto asset”.
Nowadays, the proportion of cashless payments in Japan has exceeded 40%. The Bank of Japan’s call for greater efforts to promote the development of digital currencies will further influence the payment landscape in Japan. In the future, if the digital yen is officially launched, it remains to be seen whether it can change the traditional reliance of the Japanese people on cash, improve payment efficiency and enhance Japan’s competitiveness in the global digital currency field. In the process of moving towards a cashless society, how to balance innovation and security and take into account the payment needs of different groups will also be a challenge that the Bank of Japan and the government need to continuously address.
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