The Japanese government considers CBDC | Challenge to China’s US dollar base currency system

In Japan, the use of the digital currency “白虎” has started at the University of Aizu, and with the growing interest in the global central bank digital currency (CBDC), discussions are being actively conducted.

Under such circumstances, it became clear that the Japanese government will include in the “Basic Policy of Economic and Fiscal Management and Reform” the content of considering the use of the Central Bank Digital Currency (CBDC).

Many companies have already participated in the digital yuan pilot project in China, and recently, the dispatch service platform “DiDi” and others have announced their participation, and efforts are progressing toward the 2022 Winter Olympics.

In the United States as well, efforts are underway regarding the digital dollar, such as the publication of the White Paper by the Digital Dollar Foundation, and it can be said that it is necessary to prevent the spread of the digital yuan as a new key currency.

In addition, the Governor of the Bank of England, the central bank of the United Kingdom, is also considering issuing the Central Bank Digital Currency (CBDC).

In Lithuania, the digital token “LBCOIN” issued by the Central Bank will be sold on July 23. * “LBCOIN” is not pegged as a legal currency, and is considered an experimental effort toward issuing the Central Bank Digital Currency (CBDC).

Cryptography (dense law) has already been enforced in China, and preparations for the issuance of digital yuan (DCEP) and industrial promotion by blockchain are steadily progressing.

・International spread of the yuan (expected to develop especially in African countries)

・Break away from the dollar base and SWIFT

・Preventing capital outflow (money laundering) overseas

・Improving efficiency and security of transaction settlement (elimination of intermediaries)

・Management of funds by decentralized ledger technology

Digital Renminbi (DCEP) has such advantages, and People’s Bank of China (PBoC) announced that the basic design has already been completed.

The People’s Bank of China (PBoC), the central bank of China, has already conducted 5–6 years of research on Digital Renminbi (DCEP).

1 Build a financial system compatible with the digital yuan and collaborate with financial institutions

2 Distribution (exchange) to the people by each financial institution It is said that it will be popularized in China through the above process.

Test operations in Shenzhen and cooperation with state banks and telecommunications companies such as Bank of China are progressing in the DCEP market in China.

Each country is raising a sense of crisis, with the possibility of the spread of the digital yuan (DCEP) as a new key currency of international finance.

Under such circumstances, the central banks of Japan, the United Kingdom, Canada, Switzerland and Sweden have established working groups with the Bank for International Settlements (BIS) for joint research of CBDC.

In the financial field, CBDC (Central Bank Digital Currency) is said to have many merits, as it is actively working on the introduction of blockchain technology.

・Reduction of remittance time in international remittance

・Providing payment services to people who do not have a bank account

On the other hand, as the international de facto standard for digital currencies, each country is raising a sense of crisis regarding the spread of the digital yuan.

Working groups of central banks in major countries such as the Bank of Japan were established just one month after the call of Governor Kearney of the Bank of England.

Even when Facebook and Libra were announced, Governor Kearney proposed a digital currency concept such as a “synthetic hegemony currency” with a basket of major currencies.

Therefore, in the future, the Working Group is expected to work on a new international standard currency through international joint research excluding the United States and China in order to counter the US dollar and the digital yuan.

In China, research on CBDC (Central Bank Digital Currency) has been conducted since 2014, and the Bank for International Settlements (BIS) published a report on CBDC (Central Bank Digital Currency) in September 2017.

At the time of 2017, two types of development were being considered: one for large-scale transactions and one for general consumers, which is issued by the central bank for settlement and is not affected by exchange rate fluctuations. Was the characteristic of CBDC (Central Bank Digital Currency).

Until now, the introduction of blockchain technology into financial infrastructure has been concerned about the impact on transaction speed and network environment in transactions, and due to technical issues, the realization of CBDC (Central Bank Digital Currency) is not possible.

It has been said to be difficult. It takes several years of proof-of-concept tests to be actually introduced and used as a payment service, and careful operation has been considered essential.

However, with the big announcements of Facebook Libra and the digital yuan concept in 2019, regulators in each country are rushing to respond.

There are many issues facing the realization of the CBDC (Central Bank Digital Currency), but it is expected that efforts to promote its spread will be activated in the future by establishing a law like China.

The Bank of Japan announced “Technical issues for central bank digital currency to have cash equivalent function”. It suggests to verify the feasibility of the Central Bank Digital Currency (CBDC) from a technical point of view through a proof experiment.

It is important for the Bank of Japan to carry out technical verification toward the development of CBDC that has features such as “universal access” and “strength.” In addition, it will continue to work toward the realization of “safe and reliable payment for everyone, anytime, anywhere.”

・Highly stable payment function considering practicality, processing capacity and cost for its development

・Tolerance that can handle unexpected situations such as offline payment function

・Development of terminals for people who do not own smartphones

The above is considered to be the main technical consideration issue.

Regarding digital currencies, ensuring privacy is a major issue, and measures against money laundering are also important.

Demonstration tests are being conducted in China to issue the digital yuan (DCEP).

Next time, I will consider the usefulness of CBDC in each country by referring to the progress of the digital yuan (DCEP) pilot test and the efforts of “Yuan New District” aiming at “digitalization of cities”.