Japan’s 3 biggest banks, among 30 private sector players, are set to partner on an experiment with a digital yen. The group includes banks, various Japanese brokerages, telecom and utility firms and retailers, as per a Reuters report published on 19 November.
For the purposes of the experiment, the private banks will be responsible for providing the currency, though the prospect of other players becoming involved in issuance has not been ruled out, as per the chair of the new group, Hiromu Yamaoka.
Yamaoka is an ex-executive at Japan’s central bank, which itself has been largely vocal on the question of the digital yen’s development most recently.
Japan is popular for being slow to perform cashless transactions. Cash continues to account for about 80% of total settlement in the nation, compared to 55% in the U.S and only 30% in China.
Japan’s top banks, Mitsubishi UFJ Financial Group, Sumutomo Mitsui Financial Group and Mizuho Financial Group have all developed individual digital payments systems before, including digital tokens.
However, the ideology behind this new project is to avoid a “silo-type” platform and segmented digital payments landscape.
Yamaoka stated: “Japan has many digital platforms, none of which are big enough to beat cash payments. […] What we want to do is to create a framework that can make various platforms mutually compatible.”
With private financial institutions now creating a common settlement infrastructure for the experimental digital yen, those involved will probably hope the joint move can prove competitive enough to compete with existing smartphone-based payment settlement services such as PayPal, a joint company between Paytm, Yahoo Japan and SoftBank.
Earlier in the week, Yamaoka identified the issues that digital yen provision poses for the Bank of Japan as well as private banks, including the possibility of major outflows from private bank deposits. He stated:
“The fundamental question, and a very tricky one, is how to ensure private deposits and a CBDC [central bank digital currency] co-exist. You don’t want money rushing out of private deposits. On the other hand, there’s no point issuing a CBDC if it isn’t used widely.”
He also suggested that attacking this challenge alongside the convenience and interoperability of different platforms will require extensive cooperation between the central bank as well as the private sector.