Japan’s CBDC Initiative: The Next Step in the March Toward a Cashless World?
CBDCs, or central bank digital currencies (CBDCs), aren’t a new concept. The concept of CBDCs seemed a little outdated after Facebook’s Libra project was canceled. That is, up until last week.
In fact, Nikkei reported on July 14th that the Japanese government would include consideration of CBDC in their official economic plan, the Honebuto Plan to Economic and Fiscal Revitalization.
Nikkei reported specifically that the Japanese government stated in a statement, “Will consider a CBDC while coordination with other countries.” (translated quote).
The Honebuto Plan’s inclusion of CBDC was announced ten days after Bank of Japan announced that it would start exploring technical feasibility of a “digital yen”.
What are Japan’s motives for announcing that it is exploring a digital currency? Is Japan’s interest in Japan’s CBDC announcement the next step on the global march towards a digital currency-based cashless world?
Is Japan’s CBDC exploration an answer to China’s CBDC developments?
Joel Edgerton, chief operations officer at BitFlyer’s US arm, said that Japan may have been motivated by competition from a westward neighbor.
Edgerton stated that it is possible that Japan may feel threatened by China’s CBDC, which was developed several years ago.
Although the exact date for China’s launch of its CBDC is not known, the country stated that it would accelerate the process in response to Libra’s development.
Although Libra development seems to be delayed by regulatory problems, China has not abandoned its plans for creating a national digital currency. This could cause pressure on other countries around the globe.
This was the point made by Mark Zuckerberg, Facebook’s chief executive, when he presented testimony before Congress regarding Libra at the end of 2019. He seemed to be trying to portray Libra as a digital ambassador for the US-and indirectly the United States.
Zuckerberg stated that China is making rapid progress to launch similar ideas over the next months during his opening remarks. “Libra will be backed mainly by dollars, and it will expand America’s financial leadership along with our democratic values and oversight throughout the world,” Zuckerberg said.
Is there a global CBDC’ arms race in a developing (cryptocurrency) war?
Japan could also be exploring a digital currency to prepare for a future digital arms race that could lead to a (cryptocurrency) war.
It would be a great opportunity for China, or any other country, to become the first to develop a CBDC, and to incentivize its use on global markets. Many countries are already considering the development of a CBDC.
Joel Edgerton, bitFlyer’s CEO, stated to Finance Magnates, “If China’s CBDC becomes preferred for transactions in Asia, and globally, Japan could lose economic opportunities, and prestige.”
John Deacon, Financial Services Lead at Dragon cybersecurity and cryptography company, said that there was likely to be some first-mover advantage in this space, just like with existing cryptocurrencies.
“With China’s launch of the digital Yuan, it has the potential to be a currency arms race for maximum adoption. The prize is increased CBDCs in central banks reserves and international trade.”
Joel Edgerton stated that this could have significant ramifications. For example, “carrying the point to an extreme, Japanese CBDC would be difficult to sustain their huge debt load with domestic investors.
“This could result in a situation similar as Greece’s during the financial crisis. A government with low interest rates suddenly has to borrow from a market that is no longer willing to provide cheap funds.