Hideki Murai says Japan will have a vivid picture of its CBDC by late 2022

on Jul 5, 2021
  • Per Hideki Murai, the second phase of testing the digital yen will help discover its key functions.
  • Giving more details on the CBDC might spur a debate on how it will affect financial institutions.
  • BoJ still has a lot to consider about its CBDC, such as deciding firms to become intermediaries.

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Japan will better understand the features and the design of its central bank digital currency (CBDC) by late 2022. A report unveiled this news earlier today, citing a legislator that oversees the ruling party’s CBDC plan. Reportedly, Hideki Murai, the Head of the ruling Liberal Democratic Party’s panel on digital currencies, believes the country will get a clear picture of the digital yen by the end of next year.

According to the report, this is the latest update in Japan’s move to launch a CBDC to compete against China’s digital yuan. Before this, the Bank of Japan (BoJ) rolled out the first phase of its CBDC experiment. The second phase of the testing is set to commence in the coming year, and it seeks to map out vital functions of the digital yen. These include determining which entities will act as intermediaries between BoJ and deposit holders.

While these plans are already underway, the BoJ will not make an immediate decision on whether it will issue a CBDC. However, providing more details on the CBDC might trigger a debate on how the issuance of a digital yen will affect financial institutions. Per Murai, such a dispute could test BoJ’s argument that a CBDC will not meddle in private businesses.

A lot to consider

In the publication, Murai disclosed that the Japanese financial space is already undergoing notable changes, seeing as neo-bank operators are offering a plethora of online settlement methods. In so doing, they have entered into a competition with commercial banks. To this end, BoJ has to consider the retailers while designing its CBDC. This is because a CBDC that makes commercial banks key intermediaries would edge out the neo-banks.

Murai further noted that the issuance of a CBDC would have a massive impact on financial institutions and Japan’s settlement system. According to him, a digital yen has the potential to remodel the changes taking place in Japan’s financial industry.

Stepping outside the Japanese financial sector, Murai said the digital yen must be compatible with CBDCs from other developed countries. This feature would help it gain an edge over China’s digital yuan. Per Murai, the frequent use of the digital yuan could potentially make it a primary means of settlement. In turn, this would affect the relationship between the yuan and the yen because the yen would lose its status as a safe-haven currency.