Japan is in no rush to digitize the yen but there are reasons the country should think seriously about a central bank digital currency (CBDC), said Tetsuya Inoue, formerly of the Bank of Japan (BoJ) and now a chief researcher at the Nomura Research Institute. Inoue is the author of a book on a digital yen.
- Inoue told CoinDesk Japan in a recent interview that because Japanese banknotes are highly trusted and there isn’t a considerable unbanked population, there is no rush to issue a digital currency.
- In March 2020, BoJ Deputy Governor Masayoshi Amamiya asserted that advanced economies like Japan have no need for a digital currency, and a CBDC will have little merit.
- But in 2019, the government took initiatives to promote cashless payments across the country by offering rewards as incentives, and earlier this year Japan set up a digital currency group to research a possible CBDC.
- Japan should not ignore the growing global interest in digital currencies, Inoue said, because the technology that would support such a currency would also support financial services that use the digital currency as infrastructure, creating network externalities (the increase in demand for a product or service as more people begin to use it).
- Once the entire system originating from another country has a monopoly status, it is difficult to replace it, Inoue said. This plays a role in the battle for hegemony by major countries.
- Even though Japan could still maintain its yen, if another country establishes a strong digital financial ecosystem Japan will have to rely on it to process domestic payments securely and efficiently, undermining the competitiveness of its own financial services, he added.
- When asked about concerns around personal data usage, Inoue said there would have to be a trade-off: If people are providing their information in exchange for improved convenience and service, then the gain has to be calculated accordingly.
- Governments should further promote digitalization not only for the short-term purpose of recovering economic activity, but also for the long-term stability of economic society, Inoue said.
- By July 2020, BoJ had changed its tune, with an official saying research into a potential CBDC is now a “top priority.”