Researchers at the Bank of Japan have published a report exploring the legal implications of launching a central bank digital currency (CBDC).
The report, published on November 29, is among the first detailed explorations of how a CBDC would function in practice in the Japanese economy.
Citing the “rapid development of information technology” as the impetus behind the report, the authors claim that more research is necessary to establish a relationship between central bank-issued currencies and “private money”.
The singling out of private money may be a direct reference to Facebook’s Libra plans, which have been condemned by many worldwide governments as dangerous to national monetary sovereignty.
In response, many nations have indicated they will launch their own digital currencies to prevent private corporations exerting control over monetary policy.
Are CBDCs legal tender?
Despite being at the forefront of digital innovation, Japan largely remains a cash-based society, with the majority of Japanese people choosing not to use card payments.
Interestingly, the report points out that “legal money” in Japan is currently limited to banknotes and physical coins.
According to the Japan Times, the Japanese government is seeking to double cashless payments from 20% in 2016 to 40% by 2027 – and an official CBDC could well be the digital-cash hybrid the Japanese people need to expedite digital payments adoption.
As a result, researchers suggest that the definition of “legal money” will first need to change to incorporate a newly minted CBDC as legal tender.
China leads CBDC issuance
In August, officials from the Chinese government revealed that they would be working with the likes of Alibaba and Tencent to deliver a national digital currency, which some have suggested is part of a bid to fight Facebook’s Libra plans.
The CBDC was initially scheduled for release on November 11 on Chinese Single’s Day – a hugely significant event in the Chinese economic calendar similar to America’s Black Friday – but the currency is now likely to arrive next year.
Nevertheless, China has taken some important first steps to implementing a CBDC, which has left other countries struggling to keep up.
Earlier this year, Beijing reiterated its positive stance on blockchain technology, claiming it is “vital” for China’s future. Other economic areas, such as the EU, have also explored CBDCs as a response to privately issued tokens.
Some proponents of CBDCs believe that government-issued digital currencies will reduce the usefulness of current cryptocurrencies. American economist Nouriel Roubini claimed last November that CBDCs will “destroy” Bitcoin.
At this point, it’s unclear if Japan will be issuing a digital yen, but it’s clear that CBDCs are of growing interest to governments worldwide.