Japan’s Push for Digital Yen: A New Era in Finance

A government-appointed group in Japan has strongly advised the immediate creation of a central bank digital currency (CBDC), often referred to as a digital yen. This panel, consisting of university professors, industry specialists, and researchers from leading think tanks, was established by Japan’s Ministry of Finance. Their investigation focused on the potential benefits, demand, and associated challenges and risks of introducing a digital yen in Japan’s economy.

The group’s primary recommendation is for the Bank of Japan (BOJ) to swiftly issue the digital yen and designate it as legal tender. They suggest that this CBDC should coexist with traditional cash, enhancing rather than replacing it.

Despite Japan’s status as the third-largest global economy, the country remains heavily reliant on cash. This reliance presents a unique challenge for the digital yen. Surveys indicate that a significant portion of Japanese residents prefer cash and often carry substantial amounts of it. In fact, over 90% of participants in one study preferred cash, and many households in Japan hold a large portion of their wealth in cash and bank deposits. This is in stark contrast to China, where digital payment platforms like Alipay and WeChat Pay have nearly eliminated the use of cash.

The panel also emphasized that the digital yen should be universally accessible. While CBDCs are generally seen as a means to promote financial inclusion, there are concerns that they might not reach marginalized groups if not properly implemented, as seen in cases like Nigeria’s eNaira.

Lastly, the panel recommended that the BOJ should minimize the amount of user data it collects and maintains, and should collaborate with commercial banks to limit direct interactions with consumers.

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