G7 economies are rushing to ensure they are not left behind in developing a central bank digital currency (CBDC). Shinichi Uchida, an executive of the Bank of Japan, has stated that when Japan creates a CBDC, the foundation of the design will be simplicity.
Japan is still in the research phase of its CBDC development. It is lagging behind China, which has already deployed a CBDC for the testing phase.
Calls for Moderation in CBDC Development
While giving a speech on Friday, Uchida also called for guidelines that will moderate CBDC development. He stated that measures need to be enforced to ensure that once CBDCs are released to the public, they can co-exist with the traditional payment systems.
Uchida also advocated for the co-existence of the digital yen within the private sector payment system. He stated that the vertical integration of a digital yen in the private sector payment system would depend on the simplicity of the CBDC design.
Uchida further noted that one of the factors that will guarantee this simplicity is the creation of a single infrastructure that will accept payments made in both CBDCs and electronic payment systems. This will make it easy for users to switch from one channel to the next.
Uchida also noted that vertical integration in the CBDC design would enable the private sector to adopt the CBDC and create valuable services for both parties.
Japan’s Progress in Development
The Bank of Japan has already commenced the proof of concept study regarding a CBDC. The second phase of the digital yen development is expected to start during the second quarter of 2022.
The Asia Pacific region has made the most substantial progress in CBDC development. Japan will join the growing list of nations in the region looking into CBDCs, especially with China’s advancement in the field.
Earlier this year, the Bank of Japan had announced the creation of a Liaison and Coordination Committee that will include participants from both the public and private sectors. This committee was tasked with spearheading the pilot phase for a digital yen.
In its CBDC development, Japan will also assess the compatibility of these currencies in being used for cross-border payments. This will allow the digital yen to compete with China’s digital yuan in the international market.
Cross-border compatibility is a major issue faced by countries that are taking the bold step of developing their digital currencies. However, CBDCs are becoming likely, given that global financial institutions such as the Bank for International Settlements are also pushing for CBDCs.
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