Or reshape Japan's financial industry! The digital yen framework will take shape by the end of next year

Cailian Press (Shanghai, editor Zhou Ling) reported that Hideki Murai, head of Japan's digital currency project team, recently said that by the end of next year, the structure of the Japanese yen digital currency will be clearer, which may completely reshape the changes taking place in Japan's financial industry.

Japan has long been highly dependent on cash and has been called "one of the most cash-loving countries in the world," but in order to catch up with the pace of innovation in the private sector, the Bank of Japan launched the first phase of its central bank digital currency (CBDC) trial in April this year.

The governor of the Bank of Japan has said that it is necessary to be fully prepared for the future when CBDC becomes a necessity. The Bank of Japan hopes to enter the second phase of the trial next year to formulate some key functions of the digital yen, such as which entities will act as intermediaries between the Bank of Japan and depositors.

"By around the end of next year, we will have a clearer picture of what Japan's CBDC will look like," said Hideki Murai, chairman of the Liberal Democratic Party's Digital Currency Committee, in an interview recently.

He said that although there would be no immediate decision on whether to issue a CBDC, the disclosure of more relevant design details could trigger a debate on how the issuance of a CBDC would affect financial institutions.

Japan's financial industry is already facing huge changes as non-bank retailers begin to offer various online settlement methods and enter the territory of commercial banks. Murai said that if the design of CBDC makes commercial banks the key intermediary, then business and data may move back to banks from such platform providers.

“If the Bank of Japan issues a CBDC, it will have a huge impact on financial institutions and Japan’s settlement system,” Murai said. “CBDC has the potential to completely reshape the changes taking place in Japan’s financial industry.”

Murai also said the Bank of Japan must ensure the compatibility of the digital yen with CBDCs in other developed countries, in part to counter other countries’ leading advances in digital currencies.

Japan is concerned that the rapid progress and widespread use of digital currencies in other countries will undermine the yen's status as a safe-haven currency.

The Bank for International Settlements surveyed central banks in 65 countries and regions around the world. As of 2020, 86% of central banks were conducting research on digital currencies, and about 60% of the digital currencies surveyed had entered the testing phase.

The survey pointed out that developed countries are conducting digital currency research to a large extent to counter the rise of digital settlement methods in the private sector. The European Central Bank released a report saying: "If the central bank digital currency is not issued, it will indirectly increase the competitiveness of information technology giants and put individuals and companies in a disadvantaged position."