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Bank of Japan will prioritize simplicity in CBDC design


The Central Bank of Japan (BOJ) will continue to explore the possibility of issuing central bank digital currency (CBDC). But does not consider it as an alternative solution to the problems of digitalization of payments. Executive director Shinichi Uchida stated this. He confirmed that the regulator has no plans to issue a digital currency.

Thus, there is a high probability that “a payment system with CBDC as one of the elements” will become a world standard in the future. Uchida recalled his words during the first meeting of the coordinating council. BOJ created the Digital Currency Group in March 2021.

According to the director, the next six months confirmed this trend. The European Central Bank (ECB) has started 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 System (Fed) has stepped up work in this direction. China is already conducting large-scale experiments. Moreover, some countries with small economies have actually launched a digital currency, Uchida noted.

Testing the digital currency

A group of seven central banks representing Japan, under the auspices of the Bank for International Settlements (BIS), published interim results of research in the field of CBDC. In addition, BOJ will continue to work in it, the director added. In April, the institution launched the first stage of testing the digital currency.

According to Uchida, CBDC should be a way to solve the problems associated with the digitalization of payments. As an example of one of them, he cited the competition of private payment systems, which leads to fragmentation of the sector and hinders the network effect.

The Bank of Japan is considering the possibility of using CBDC to ensure the compatibility of these systems and reduce the cost of payments, as well as increase efficiency. But digital currency may not be the only solution to the problem, Uchida believes.

A constructive step in choosing a direction

“The introduction of CBDC is expensive for both central banks and intermediaries from the private sector, so after careful study, it may be better to look for another method. This is a constructive step in choosing a direction for payment systems in the digital world,” Shinichi Uchida said.

In his opinion, the regulator needs to continue studying CBDC in order to be ready for its potential release.

Recall that Japan announced the development of a detailed plan for digital currency by the end of 2022. The head of the digital currencies group of the ruling Liberal Democratic Party (LDP) Hideki Murai stated this. According to him, the new information will lead to a discussion of the impact of the digital yen on financial institutions. The politician added that commercial banks will benefit from the transfer of control over customer data to the Central Bank.

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