Bank of Japan doubts CBDC has no alternative

November 2, 2021

Bank of Japan doubts CBDC has no alternative

The Central Bank of Japan will continue to explore the possibility of issuing a CBDC, but does not see it as a no-alternative option to address the digitalisation of payments. This was stated by managing director Shinishi Uchida.

He confirmed that the regulator has no plans to issue a digital currency.

There is a high probability that "a payment system with CBDC as one of the elements" will become a global standard in the future, Uchida recalled his words during the first coordination council meeting. The Bank of Japan set up the Digital Currency Group in March 2021.

According to the director, the next six months have confirmed the trend. The ECB has launched a research phase, based on the results of which it will decide within two years whether to issue a CBDC or not. The US Federal Reserve has stepped up its work in this area, China is already conducting large-scale experiments and some small economies have actually launched digital currencies, Uchida noted.

A group of seven central banks, including Japan's, under the auspices of the BIS have published interim results on CBDC research. The Bank of Japan will continue its work in it, the director added.

The institution launched the first phase of testing the digital currency in April.

According to Uchida, the CBDC should be a way to address the challenges posed by the digitalisation of payments. As an example of one of them, he cited competition from private payment systems, which leads to fragmentation of the sector and prevents network effects.

The Bank of Japan is considering using CBDC to ensure the interoperability of these systems and make payments cheaper and more efficient. But digital currency may not be the only option to solve the problem, says Uchida.

"Implementing CBDC is costly for both central banks and private sector intermediaries, so after careful consideration, it may be better to look for another method. This is a constructive step in choosing the direction for payment systems in the digital world," he said.

In his view, the regulator needs to further study CBDC to be ready for its potential release.

Recall that Japan has announced a detailed plan for digital currency by the end of 2022.

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