Bank of Japan Explores Design Options for CBDC – No Immediate Plans for Issuance

  • Bank of Japan has said that it currently has no plan to issue CBDC  
  • Bank of Japan has finished the Proof of Concept (PoC) for Phase 1 and has moved to phase 2
  • Design option would include considering key question on how to build a highly reliable CBDC ecosystem

The Bank of Japan has stated that presently it has no plans to issue CBDC. BOJ Executive Director Shinichi Uchida stated that the Bank and the financial industry alone cannot decide whether or not a CBDC should be issued. The Japanese people will have to make the decision. Mr. Uchida emphasised that exploring prospective CBDC design possibilities would be advantageous to Japan in order to assist future decision-making. Mr. Uchida remarked that two concerns need to be addressed: (a) what type of CBDC is appropriate as a public good for the Japanese people, and (b) how to create a highly trustworthy CBDC ecosystem.

Speaking on stablecoins, Mr. Uchida stated that Stablecoins created by private businesses have been progressively growing in popularity in other countries. Stablecoins already have a market valuation of well over 10 trillion yen. While stablecoins can benefit users, issues including AML/CFT, cyber hazards, consumer and investor protection, and financial stability threats must be addressed in order to provide long-term societal benefit. According to Mr. Uchida, any entity wishing to issue stable coins must have a banking licence or have strong consumer protection mechanism in place for protecting consumer funds. if stablecoin issuers are subjected to strict regulation, it will be difficult for them to benefit only from digital payment services alone. Service providers would have to hunt for alternate revenue sources to pay for the costs of providing unprofitable services.

The Bank of Japan must examine ways to offer the unprofitable part of private payment services in order to make payment and settlement systems safe and frictionless. The reason for this unprofitability is that payment service providers have to provide for the cost of comprehensive security and interoperability of the network. Therefore, one of the policy options for BoJ could be creation of framework where both public and private parties collectively share the cost of non-competitive area. Mr. Uchida used the instance of Swish, a Swedish mobile payment system, as an example of an established business ecosystem where the underlying infrastructure is cooperatively administered by private financial institutions as a cooperative area.

The Bank of Japan could adopt a structure in which the central bank issues CBDC as a public good and private firms allow end-users to use CBDC with their own overlay services as a potential CBDC ecosystem design. BoJ could also adopt a structure in which CBDC is distributed through a variety of private-sector infrastructures or platforms. Private enterprises would be able to avoid overlapping investment in non-competitive fields, and the ecosystem would encourage an environment where players could develop and compete while maintaining interoperability.

CBDC infrastructure has to be protected from cyber-attacks and suspension of operations will have deep social impact. Bank will not introduce CBDC functionality as a means to achieve a negative interest rate

Because a CBDC would be used by the entire public, it is more likely to be targeted by cyber-attacks than digital payment services supplied by private firms. If the CBDC system’s operations are suspended due to cyber-attacks the societal impact will be larger. Mr Uchida said that the bank will not implement CBDC as a means of achieving a negative interest rate.

According to Mr Uchida, whether CBDC is employed or not, the BoJ should avoid creating a system that is too unique to be used outside of Japan. Any system that does not conform to global standards, regardless of how well it is adapted to domestic needs, will be at a disadvantage in the digital world. The Bank aspires to closely track global trends and contribute to shaping them, while putting a strong focus on collaboration among major central banks.

Staff Galactik Views

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