“Crypto property and stablecoins are no match for well-designed central financial institution digital currencies,” said Kristalina Georgieva, Managing Director of the World Financial Fund (IMF) (CBDCs). CBDCs, if designed wisely, will undoubtedly provide greater resilience, security, availability, and lower prices than private types of digital money.”
Having taken note of Georgieva’s previous statement, the Bank of Japan (BOJ) has decided to launch a pilot program to test the use of digital yen against the backdrop of nearly 100 countries testing CBDC adoption.
The Financial institution of Japan built an experimental environment centered on a CBDC ledger, which is the muse of a CBDC system, in Proof of Concept (PoC) Section 1, which began in April 2021. Starting in April 2022, the Financial Institution carried out more complicated, additional CBDC features to the core features explored in Section 1 and investigated their technical feasibility and processing efficiency in PoC Section 2.
In his opening remarks at the central financial institution’s meeting with private-sector executives, BOJ Govt Director Shinichi Uchida stated: “To clarify the pilot program, which is in the final stages of development,”
Our hope is that the pilot programme will result in better designs through collaboration with private companies.
Former Central Bank Governor Masayoshi Amamiya shared a survey on CBDC and the possibility of issuing a CBDC in a speech again in 2019.
The governor explained the various factors influencing the possibility of the BOJ issuing digital Yen. Based on the year-on-year rate of change in the amount of money in circulation, it was discovered that top-denomination banknotes were on the rise, cash circulation declined, and the increase in lower denomination notes was less than that of the upper denomination notes.
Based on these findings, he assumed that cashless funds appear to increase in small-value funds where the change piles up, but money is still widely used as a cost method.
If and when the BOJ decides to issue digital Yen, the BOJ must strike a balance between developments on the design and coverage fronts. Even if the BOJ achieves stability, other risks could derail the working economy’s wheels.
Customers, for example, may withdraw excessive cash from banks to purchase CBDCs, potentially causing a disaster. Furthermore, the banking trade associations raised concerns that a central financial institution’s digital currency, if poorly constructed, could implode its core business model.
A faulty CBDC may mortgage depositors’ funds by enticing customers to withdraw funds from traditional accounts and keep them in digital currencies. This could significantly reduce the amount of money available for lending by banks. As a result, the BOJ must coordinate with the relevant entities to ensure a smooth transition.
Nonetheless, the residents’ acceptance of the digital Yen may be critical to the challenge’s success. Regarding the e-Naira digital currency, Nigerians did not take it well. According to a Bloomberg report, less than 0.5% of Nigerians used the digital currency at the end of the first year since its launch. Less than one in every 200 Nigerians is an active eNaira user.
Surprisingly, Nigeria ranked first in search curiosity for the key phrase “Bitcoin” in August 2021. Furthermore, in October 2021, the African country was ranked sixth in the 2021 International Crypto Adoption Index published by blockchain analytics firm Chainalysis.
If a digital Yen is launched in an environment where cryptocurrency adoption is slow, it will be fascinating to see the future of Japan’s digital currency. Or, can Uchida, a finance expert well-known for his unconventional but profitable monetary structure, pull off something special for Japan? Time will tell.