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Bank of Japan taps ‘skills and insights’ of 60 firms into digital currency

Tokyo: the country's capital city is home to Japan’s central bank, which is stepping up its engagement with the private sector over a potential CBDC | Credit: DLKR; Pexels

Bank of Japan has convened the first meeting of a new forum through which it is engaging with the private sector on the topic of central bank digital currency (CBDC) – a potential digital yen.

Japan’s central bank’s ‘CBDC Forum’ held its first meeting on 20 July – about three months after the start of retail CBDC experiments through a 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, after an ‘open call for participants’ in April. Well-known names include Hitachi, Japan Post Bank, Mizuho Bank, MUFG Bank, SoftBank and Sony (Global Government Fintech publishes the complete list below this article; the list is published on the Bank of Japan’s website in JPN language only).

The first gathering saw officials set out the central bank’s progress with CBDC and provide an overview of ‘overseas trends’. Thematic working groups are being created, with the first two focused on ‘Connection between CBDC system and fundamental external systems’ and ‘Overlay services and the CBDC ecosystem’.

RELATED ARTICLE Japan kicks off digital currency experiments – our news story (6 April 2021) on the BoJ beginning an initial one-year experiment with a potential CBDC

Japan’s CBDC experimentation

The Bank of Japan (BOJ) has been conducting experiments on CBDC since April 2021, when it began an initial one-year programme to test the technical feasibility of the core functions and features required for a retail CBDC – a central bank digital currency for everyday use by the population (also known as a general purpose CBDC), as distinct from a wholesale CBDC (for interbank payments).

This activity was described as ‘proof-of-concept (PoC) phase one’, with Japanese conglomerate Hitachi appointed to work with the BoJ (according to a JPN language announcement).

On 17 February this year the central bank announced that it would ‘complete PoCs’ in March and launch CBDC pilot activity in April.

‘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.’

The announcement mentioned the creation of the CBDC Forum ‘to discuss and explore a wide range of topics with private businesses related to retail payments’.

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Japanese public should decide

The BOJ has recently undergone a change in leadership, with Kazuo Ueda succeeding Haruhiko Kuroda as governor in April.

The country, 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. ‘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 (a fintech conference in Japan) 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 BOJ’s February 2023 CBDC update stated that ‘whether to issue a CBDC should be decided by discussions among the Japanese public’.

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 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.

RELATED ARTICLE Hong Kong authority kicks off CBDC pilots alongside 16 companies – our news story (25 May 2023) on the companies selected to participate in the first round of the e-HKD (e-Hong Kong dollar) ‘pilot programme’

Hong Kong CBDC pilots ‘in full swing’

Elsewhere in Asia, the Hong Kong Monetary Authority (HKMA) has issued further details about its ongoing retail CBDC pilots.

In May the HKMA announced a line-up of 16 firms from the financial, payment and technology sectors that it had engaged to participate in the first round of a e-HKD (e-Hong Kong dollar) ‘pilot programme’. The pilots are investigating potential CBDC use cases in six categories: ‘full-fledged’ payments, programmable payments (including government grant disbursement), offline payments, tokenised deposits, settlement of ‘web3’ transactions and settlement of tokenised assets.

The HKMA used a LinkedIn post a couple of weeks ago to describe the e-HKD pilot programme as being ‘in full swing’.

HSBC is exploring full-fledged payment solutions using e-HKD, ‘providing a seamless and secure experience for individuals and businesses’. The pilot will be ‘housed within an ecosystem that aims to showcase cost savings, rewards integration and fraud prevention’. 

Standard Chartered Bank and Giesecke+Devrient, meanwhile, are ‘seamlessly piloting offline payment transactions using the e-HKD app and smart card’. Also within this category, ICBC (Asia) is testing an ‘enhanced e-HKD physical card, complementing the continued usage of physical currency in retail transactions’.

Hong Kong has yet to commit to launching a CBDC despite China, of which Hong Kong is a part, driving forward with its e-CNY (‘digital yuan’).

Bank of Japan CBDC Forum members

Aeon Bank
All Banks Fund Settlement Network General Incorporated Association
Bank of Yokohama
Biprogy
Boostry
Canal Payment Service
Chiba Bank
Coincheck
Dai Nippon Printing
Daiwa Institute of Research
Daiwa Securities
Datachain
East Japan Railway Company
FeliCa Networks
Fukuoka Financial Group
Hitachi Channel Solutions
Hitachi Solutions
Infcurion
Japan Post Bank Co
Japan Securities Clearing Corporation
JCB
Joyo Bank
JPX Research Institute
Kotora
Lawson
NEC
Nudge
Merpay
Microsoft Japan
Mitsui Sumitomo Insurance
Mitsui Banking Corporation
Mizuho Bank
Money Forward
MUFG Bank
Nomura Securities
Nomura Research Institute
NRI Secure Technologies
NTT Data Financial Technology Corp
NTT Docomo
Panasonic Connect
PayPay
Rakuten Payment
Resona Holdings
Secom
Seven Bank
Shinkin Kyodo Center General Incorporated Association
Shinkin Information System Center Co
Shizuoka Bank
SoftBank
Sony
Soramitsu
Sumitomo
Sumitomo Mitsui Trust Bank
SBI R3 Japan
Startale Labs Japan
TIS
Tokio Marine & Nichido Fire Insurance
TOPPAN Edge
Toyota Financial Services
Trade Waltz

Source: p2 of the three-page Bank of Japan CBDC Forum update (July 2023)