Japan Uneased by Chinese CBDC, Plans on Digital Yen in '2 to 3' Years

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China continues to pull ahead in the central bank digital currency race as more details on its secretive digital yuan project intermittently surface.

Over the past few weeks, a number of Japanese lawmakers have publicly expressed their preference for a CBDC controlled by the Bank of Japan.

Bank of Japan vs. CBDC: A preference for cashThe Bank of Japan's relationship with CBDCs can be traced back to April 2018, when the agency's Deputy Governor Masayoshi Amamiya first addressed the topic publically.

Chinese threat: New wave of interest in CBDCs among Japanese politiciansIn 2020, a year that has already been remarkably eventful in terms of global crypto adoption, Japanese lawmakers returned to the idea of a CBDC. The wave of renewed interest was started by a parliamentary group comprised of around 70 members of the ruling Liberal Democratic Party who are alarmed about the prompt development of the digital yuan in neighbouring China.

The head of the banking and finance system's research commission at the Liberal Democratic Party, Kozo Yamamoto, said that Japan should create a digital yen currency, hopefully "Within two to three years."

Is Japan too late to the party? Experts think notJeff Wentworth, co-founder of Tokyo-based blockchain tooling startup Curvegrid, believes that issuing a digital yen would be a logical step for the local central bank.

"CBDCs in general will upset the current status quo, but it's hard to say what impact the digital yuan in particular will have on the global currency balance. A key consideration is how decentralized the yuan and other CBDCs will aim to be. If kept mostly centralized, they will be CBDCs in name only and not much different from the current state of electronic money. Greater change is likely to be driven by CBDCs which adopt a more decentralized approach."

"Technically, Japan's CBDC would be a great tentpole for digital transformation and innovation for all Japanese financial services firms and a way for them to piggyback on the Bank of Japan's digital currency to push their own product development. Financially, a CBDC could be a huge money saver for banks as well as an effective tool to protect against tax evasion and money laundering."

Both experts agree that albeit the People's Bank of China is considered the frontrunner in the CBDC race, it is not too late for the Japanese central bank to start its own digital currency project, as two to three years in global financial market terms is still quite fast.

On Feb. 12, the Financial Times reported that the Chinese central bank has filed more than 80 patents related to its undisclosed plans to launch the digital yuan and the way it integrates with the banking system.

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