No single digital currency will dominate global transactions if central banks strive to enhance their own settlement systems, a senior Bank of Japan official said, brushing aside fears China’s rapid progress on a digital yuan could upend markets.
China, which has been ahead of other major economies in experimenting on a digital currency, has publicly said it aims to become the first to issue one to reduce its dependence on the global dollar payment system.
In efforts to catch up with China and private projects such as Facebook Inc’s plan to issue its own virtual token, seven major central banks - including the BOJ - last week laid out key principles for issuing CBDCs.
Kazushige Kamiyama, who heads the BOJ’s payment and settlement systems department overseeing CBDCs, said China may have a “first-mover” advantage on issuing a digital currency.
“But new technology is invented all the time. Even if you’re ahead on the technology available now, you could get locked into what becomes old technology as time passes,” he told Reuters.
As with other central banks, the People’s Bank of China is likely developing a digital yuan mainly for the purpose of creating a stable, efficient settlement system, he added.
“I don’t think a single digital currency will dominate the world, as long as each country makes full efforts to improve its settlement system,” Kamiyama said.
“We’d like to keep tabs on what other central banks are doing and learn from them, not just from China but from other countries,” he said.
Japan has been cautious about moving too quickly on CBDCs given the social disruptions it could cause in a country that has the world’s most cash-loving population.
But China’s progress toward issuing a digital yuan has prompted the government to reconsider and pledge in this year’s policy platform to look more closely at the idea.
No big rush
The BOJ announced last week plans to begin experimenting from next fiscal year whether it can issue a digital yen, joining peers in catching up to rapid innovation.
Kamiyama said he hopes to begin the first phase of experiments at the start of the next fiscal year in April and move to the second phase by the end of the business year in March 2022.
By sharing information on CBDC platforms, major central banks can make them mutually compatible and connect them in the future to offer cross-border settlement services, he said.
But Kamiyama said the BOJ was in no rush to issue CBDCs and would carefully examine ways to ensure a digital yen won’t cause any disruptions to monetary policy and the banking system.
For example, the BOJ may set a limit on the amount of digital yen it issues to prevent an unwelcome outflow of funds from private bank accounts into CBDCs, he said.
“We’re looking into CBDCs to enhance our settlement system, not to use it as a tool for monetary policy,” Kamiyama said, stressing a digital yen would co-exist with bank notes.
“That means we need to ensure that issuance of CBDCs does not pose any negative impact on the economy, such as destabilizing Japan’s settlement system.”