Japan should issue a central bank digital currency (CBDC) “without delay,” a government panel probing the feasibility of a digital yen has recommended.
The panel comprised university professors, industry experts, and researchers from top think tanks and was commissioned by the Ministry of Finance. It researched the opportunities that a digital yen presents, its demand in the current Japanese economy, and the challenges and risks it poses and faces.
It recommends that the Bank of Japan (BOJ) issue the digital yen without delay and give it legal tender status. The panel opined that the CBDC should coexist alongside cash, stating, “The basic stance should be that CBDC will complement, rather than replace, cash.”
A digital yen faces a unique challenge in Japan—a cash-intensive society. Japan, despite being the world’s third-largest economy after the United States and China, still relies on physical cash at a time when digital payments have taken over.
A survey in September found that two in three Japanese residents carry 5,000-20,000 yen in cash on average, or $35-$140. Over 90% cited cash as their most preferred payment method in one study. According to the Japan Times, more than half of the wealth held by households is in cash and deposits. In contrast, cash is almost nonexistent in neighboring China as Alipay and WeChat Pay dominate payments.
The panel’s report also recommended that the digital yen be made available for use “by anyone, anytime and anywhere.”
While CBDCs are seen as the best digital way to push for financial inclusion, some central banks have reported that they can work against it unless made available to the marginalized. For instance, in Nigeria, the eNaira has failed to get the traction its central bank envisioned as it’s still interwoven into the banking systems that many can’t access.
On privacy, the panel recommended that the BOJ limits the user information it accesses and holds to a minimum. The report added that the central bank should also work with commercial banks to limit direct engagement with consumers.
Read the full article here