Japan will model digital yen tests on Sweden’s attitude, not China’s
(Bloomberg) – Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.
Most read from Bloomberg
The Bank of Japan will explore the design issues of a central bank’s digital currency in measured steps like Sweden rather than move on to large-scale pilot tests like China, according to the BOJ’s point-man on digital yen research.
“Sweden’s staged and planned expansion of experiments suits us better than China’s large-scale tests from the beginning,” said Kazushige Kamiyama, head of BOJ’s payment systems department, in an interview.
“The framework and design of the central bank’s digital currency must be decided as part of an overall settlement system for the future,” he added.
Kamiyama also said that studies will continue in close collaboration with other major central banks including the Federal Reserve and the European Central Bank in comments indicating that the BOJ wants to continue its research cautiously while ensuring compatibility with other potential CBDCs.
Earlier this year, China took another step towards a full-scale launch of its digital currency by introducing it to a larger number of users at the Winter Olympics in Beijing.
Sveriges Riksbank has meanwhile focused on minor technical research, including a test this year, to see if an e-krona can fit into a settlement system with other digital payment providers.
Like the Riksbank, the BOJ has not yet decided whether to issue a CBDC. The Bank of Japan says the decision is up to the public.
Kamiyama said it was natural for emerging economies to be more enthusiastic about launching electronic money compared to developed countries with well-established payment systems.
Still, with the pandemic accelerating cashless payments and a strong interest in alternative payment assets like Bitcoin, a growing number of central banks are exploring the need for electronic money.
About 87 countries representing over 90% of the global economy are exploring the potential of the CBDC, more than twice as many by 2020, according to the Atlantic Council, a Washington-based think tank.
BOJ Governor Haruhiko Kuroda said the decision on the feasibility of issuing a CBDC is likely to be made in 2026.
Referring to the potential time needed to develop a specific framework for a digital currency, Kamiyama indicated that it would take approximately three years once the design was determined. It is a time frame that is largely in line with the views of some decision-makers in Europe.
The Bank of Japan launched the second phase of its digital money experiments this month, and Kamiyama signaled that it is likely to move on to a pilot test, the next phase.
Kamiyama said the need for a ceiling on holdings and transactions will be carefully considered during experiments, reflecting the position of European officials.
“Many private-sector companies are demanding that a limit be set to avoid, or at least contain, a massive capital shift to a CBDC from banknotes or deposits,” Kamiyama said.
(Adds more information on potential timeframe for CBDC design)
Most read from Bloomberg Businessweek
© 2022 Bloomberg LP