Home Digital Currencies Bank of Japan governor: CBDC is ‘pivotal’ topic but public awareness low

Bank of Japan governor: CBDC is ‘pivotal’ topic but public awareness low

Tokyo, Japan: more than three-quarters of people answering a Bank of Japan survey had ‘never heard of’ CBDC | Credit: Sofia Terzoni (Pixabay)

The governor of the Bank of Japan has described central bank digital currency (CBDC) as a ‘pivotal’ topic for central banks worldwide but highlighted low awareness of CBDC among the Japanese public.

Most central banks worldwide are researching or experimenting with CBDCs but few have committed to introduce them. Japan’s central bank launched a pilot CBDC programme in 2023, having begun CBDC experiments almost three years ago.

Kazuo Ueda is approaching the end of his first year as BOJ governor, having succeeded Haruhiko Kuroda 11 months ago. In a speech titled ‘What to Know about Central Bank Digital Currency’, delivered during the FIN/SUM 2024 conference, he provided the audience with a largely theoretical explanation of CBDCs albeit with some insight into the considerations underpinning his colleagues’ thinking.

He set the scene by referencing the results of the BOJ’s 95th ‘Opinion Survey on the General Public’s Views and Behavior’ (September 2023) that revealed that, when asked about their familiarity with the term ‘CBDC’, 76.9 per cent said they had ‘never heard of it’. Fewer than 20 per cent of respondents answered ‘have read or heard of it, but do not know much about it’ while just 3.1 per cent responded ‘know about it’ (the most ‘aware’ possible answer). The sample size was 4,000 people (of whom 2,016 provided ‘valid responses’).

The result would seem to carry significance given that a CBDC update issued by the BOJ in February 2023 stated that ‘whether to issue a CBDC should be decided by discussions among the Japanese public’ – a line that Ueda reiterated in his speech.

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BOJ: three aspects underpinning CBDC work

Ueda said that to “facilitate such discussions” about CBDC (among the public), the BOJ “has been proceeding with technical experiments and explorations into institutional arrangements”.

He went on to reference “three points are borne in mind at all times” during its work into a potential digital yen.

“The first is to visualise and shape our future,” he told the audience at the Tokyo event. “While CBDC continues to be explored by many countries as one of the realistic options being laid out, the goal of these future discussions is to design payment and settlement systems that are suitable for a digital society, taking into account external factors such as the introduction of novel technologies and new forms of money including stablecoins. In doing so, it is necessary to consider, with a well-balanced perspective that takes into account both global and domestic circumstances, potential problems that could eventually arise even if we do not face an immediate problem at the moment.”

“Second, there is a need to respect the various functions that cash and the two-tiered system […] have provided society with,” he said. “To give an example, it is vital for CBDC to be designed in such a way that users’ privacy would be preserved, showing respect for their lives as people. Similarly, the sharing of roles between central bank money and private money as well as private firms” capacity for resource allocation and innovation should also be valued.”

“Last but not least, the digital features of CBDC carry the potential to create diverse values,” he continued. “How should we utilise CBDC to empower people and firms, and ultimately establish a new ecosystem, which would be brought about by CBDC adoption? Exploring CBDC from such a perspective is equally important.”

Bank of Japan: the central bank promoted the governor’s speech via X (formerly Twitter)

BOJ’s private-sector engagement

The BOJ currently operates a ‘CBDC Forum’ through which it is engaging with the private sector on CBDC. Its first meeting was in July 2023 – about three months after the start of retail CBDC experiments through the pilot programme.

The central bank said it had set up the group with a view to ‘utilising the skills and insights of private businesses in proceeding with the programme’.

Sixty companies from sectors including banking, payment services, fintech, retail and information technology (IT) are members. Well-known names include Hitachi, Japan Post Bank, Mizuho Bank, MUFG Bank, SoftBank and Sony (Global Government Fintech published the complete list in August 2023).

In February 2023 the central bank announced that it would launch CBDC pilot activity in April 2023.

‘The Bank will develop a system for experiments, in which a central system, intermediary network systems, intermediary systems and end-point devices are configured in an integrated manner,’ it said. ‘The Bank will, for example, test the end-to-end process flow while exploring the measures and potential challenges for connecting the experimental system with external ones. At present, actual transactions are not assumed to take place among retailers and consumers.’

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Cashless payments’ rise

Japan, which has a total population of about 125 million, has traditionally been seen as a nation in which cash remains relatively popular. But a BOJ briefing on CBDC published in October 2020 described cashless payments’ growth as ‘remarkable, reflecting technological innovation in recent years’.

‘Many do not see the need to introduce general purpose CBDC for the time being, mainly because the ratio of cash in circulation to nominal GDP is high, at around 20 per cent,’ the document noted (a general purpose CBDC is a CBDC for people’s everyday use, as distinct from a wholesale CBDC, which would be for interbank use). ‘However, if cash in circulation drops sharply in the future, it might be necessary to make up for the decrease in cash by issuing CBDC. Regardless of the situation, it might be determined as appropriate to issue CBDC in order to improve Japan’s payment and settlement systems.’

Kuroda said at the FIN/SUM Summit 2021 that ‘while there is no change in the bank’s stance that it currently has no plan to issue CBDC, from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, we consider it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner.’

The central bank convened a ‘Study Group on Legal Issues regarding Central Bank Digital Currency’ in its Institute for Monetary and Economic Studies in 2018.

The BOJ was also among a group of leading central banks that, together with the Bank for International Settlements, contributed to an influential joint-report, ‘Central Bank Digital Currencies: Foundational Principles and Core Features’, published in October 2020.