The East Asian superpowers are battling it out, this time with blockchain and digital currencies as a focus.
ZDNet reported Friday that Japan has quietly begun digital yen experiments in an effort to build out its CBDC capabilities.
The move comes as China’s digital yuan is seeing explosive development and South Korea has assembled a team to spearhead its digital won.
Legal implications before digital yen
Reports state technical challenges for a state-wide deployment are being carefully considered. Legal implications form the bulk of research, and Japan wants a “concrete footing” before issuing a digital currency.
Heading the study is the Bank of Japan(BoJ), the country’s central bank with an estimated $4.87 trillion under management.
Last week, the bank issued its “Technical Hurdles for CBDC” report, noting that upcoming experiments with a state-backed currency could provide an alternative to the “traditional” Yen.
The ongoing coronavirus pandemic has been singled out as a catalyst. BoJ believes traditional payment methods, such as cash and cards, rely on contact that may increase the risks of virus transmissions. To counter this, contactless methods like mobile, online, and digital currency payments may gain precedence.
Earlier this month a Japanese senator said cryptocurrencies “will be more important” in a post-COVID world, as CryptoSlate noted at the time.
But don’t expect to see digital yens going around soon. BoJ said the project remains in a nascent stage, for now, one where the groundwork and long-term aspects are carefully weighed out.
Two specific research areas have been identified as the main focus—resilence and ease-of-access. The former deals with how a digital framework could survive efficiently in times of disasters.
This is important, as Japan is one of the most earthquake-prone countries globally which causes disruption of several economic systems for days on end. If the power is out, there are no outlets to access online payments, a feature that cash provides for citizens.
Earthquake concerns are significant, with even bullet trains being upgraded for the event. A tweet from June 2 shows:
Another concern is that of Japan’s older population not understanding digital currencies and ending up victim to scams. Furthermore, they may not have access to smartphones, impeding a full-scale digital yen launch.
As per Reuters, only 65% of the Japanese population owns a smartphone. This means fintech applications are not inclusive to all age groups as of today.
Japan’s economy is notorious for its heavy reliance on cash, despite being internationally-acclaimed as a tech-forward country. Reports suggest Japan’s banking systems run on outdated software and are slow, creating an environment ripe for digital currency disruption.
Bitcoin and cryptocurrencies have a cult-following in the country. As CryptoSlate reported previously, Japanese e-commerce giant Rakuten entered the crypto market last year, via the launch of an exchange.