For many decades, one of the better-known sayings in Japan has been “cash is king,” but things are changing, and in a few years, that may no longer be the case.
Officials of the Bank of Japan (BOJ) have been getting increasingly louder about having the country maintain pace with the rapid developments around digital currencies, which may accelerate a shift to cashless payments.
Japan is getting serious about digital currency
Japan has always favored physical currency, but things are changing. The country witnessed the ratio of cashless payments rise to 42.8% in 2024, hitting the government’s 40% goal a year earlier than targeted, according to government data.
Japan is not one of the first names that come to mind in terms of payment technology, but in recent times, there has been an increase in cashless transactions and it is forcing policymakers to ensure they are ready to adapt to shifting public preference on payment and settlement means.
This includes exploring the option of a central bank digital currency (CBDC) but while no decision has been made on whether to issue a digital yen, the BOJ kickstarted a pilot program for developing a CBDC in 2023, and has been consulting with private firms and the government on its framework and design.
“Although banknote issuance remains high in Japan, usage of notes could fall significantly in the future amid rapid digitalisation,” BOJ Executive Director Kazushige Kamiyama said in a meeting last week with private firms on the pilot program.
“As such, Japan must consider what steps it can take now to ensure its retail settlement system is convenient, efficient, accessible universally, while being safe and resilient.”
Cash will remain king in Japan for now
BOJ Deputy Governor Shinichi Uchida believes a CBDC may become “a critical piece of infrastructure” shaping the future of Japan’s payment and settlement systems. However, he does not expect demand for cash to disappear in Japan any time soon.
In his Saturday speech, Uchida painted the picture of a hypothetical world in which the yen becomes second to another payment instrument — such as crypto assets — as the main form of payment in Japan.
However, Uchida also stated that for such a world to come into being, the public’s belief in the BOJ’s ability to keep the value of the yen stable has to be shaken, which could happen if the central bank fails to fullfil its mission of keeping the price stable.
“Looking to the future, in a society that has made significant advances in digitalization, there is no guarantee that currency issued by the central bank of a sovereign nation will continue to function as a generally acceptable payment instrument,” he said.
Talk of CBDCs in Japan coincides with a time when the topic returns to the spotlight in the US as President Donald Trump issued an executive order in January banning the Federal Reserve from issuing a digital dollar, seemingly in a drive to promote cryptocurrencies and stablecoins instead.
Japan, like many other countries, has gotten serious about a CBDC due to the recent developments and the growing global suspicion that the US dollar’s dominance is ending.
In response to Trump’s push to promote stablecoins, the European Central Bank has revealed a need to issue a digital euro and develop an electronic means of payment that does not rely on dominant US providers such as Visa.
KEY Difference Wire: the secret tool crypto projects use to get guaranteed media coverage
Source: https://www.cryptopolitan.com/japan-cbdc-inevitable-boj-digital-currency/