The Bank of Japan (BoJ) is scrapping its planned host of central bank digital currency (CBDC) services due to a reported lack of public interest, according to an initial report from Asia Times. Among other things, this means one aspect of Japan will remain unchanged since the Japanese bubble economy of the 1980s: its reliance on conventional, fiat-based currency.
This move came despite the promise of CBDC, which could be the first truly peer-to-peer digital form of conducting money transactions, as existing digital wallets still require the presence of intermediary institutions like financial institutions, issuing and acquiring banks, payment service providers, and other entities that can verify transactions.
A cash-based society
Despite Japan’s reputation as a leading innovator in the technological sector, many aspects of Japanese life remain stuck in the 80s. Yellowing pieces of technology like fax machines still lurk in the corners of office buildings throughout urban Japan, job applicants still have to physically write out their resumes, and most transactions involving money are still done via cash in spite of recent trends towards digitalization.
However, recent trends toward digitalization found in the private sector have also made the concept of CBDC largely redundant for the masses, as discovered in the Bank of Japan’s experiments gauging public interest in this new utility. Since 2021, The Bank of Japan has run these tests in preparation for a potential national roll-out, should the need arise.
After checking for the technical feasibility of shifting towards CBDC from fiat currencies, the BoJ reportedly saw no need to implement such a change in the near future. The ongoing Covid-19 epidemic has driven the traditionally cash-reliant country toward other forms of money transfer, which include e-money payment tools, credit cards, and digital banking services, all of which the Japanese public has no problems accessing.
Potential future adoption
While the initial reception was lukewarm at best, the idea of using CBDC for their transactions might still grow on the Japanese public. The Sumitomo Mitsui Banking Corporation (SMBC) — Japan’s second-largest bank — recently announced the formation of its own business token lab aimed at driving up awareness and acceptance of Web3 and blockchain technology in the nation. On top of this, despite Japan’s international reputation as a high-trust society, some studies and locally-published news articles have suggested that institutional trust may be steadily decreasing amongst the populace — particularly toward the government.
With these two factors in mind, some of the advantages offered by CBDC become more apparent. For example, this form of currency safeguards national wealth from instances of bank failure, and affords the central bank the tools to meaningfully influence monetary policy via inflation. However, even with those pros offered by CBDC, this form of currency remains largely untested across world markets. So for Japan and its financial institutions, this particular change may remain filed under “wait and see” for the time being.