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A former policy board member at the Bank of Japan (BOJ) has said its central bank digital currency (CBDC) studies have failed to impress and that the bank has no plans to implement a digital yen in the near future.
Sayuri Shirai, ex-BOJ policy board member and now professor at Keio University, said the main reason the BOJ continues to study CBDC is to “catch up” with new advances in blockchain technology.
That way, if Japan ever did need to launch a CBDC — for example, for financial stability reasons — it would already be technically equipped to do so.
The BOJ has been looking into CBDC since 2020, and in 2021 it started conducting experiments to test the technical feasibility of the core functions and features of a retail CBDC.
The second phase of that testing began in April this year, but according to Shirai, the bank has already gone cold on the idea.
The first reason offered for the BOJ’s change of heart is that the launch of a CBDC, despite being a huge undertaking for the BOJ, would have practically zero impact on financial inclusion.
“The Japanese public has virtually universal access to the banking system and so the issue of promoting financial inclusion has never been a major policy issue,” said Shirai.
“The use of digital and mobile technologies initiated by the private sector when paying for goods and services is also widespread.”
Meanwhile, despite the advanced nature of Japan’s private-sector payments market, Japan remains a cash-driven economy.
In 2021, a survey by Statista found that for more than 90 percent of Japanese consumers, cash was their most used payment method.
This was despite a similar survey from a year earlier which found that 28 percent of Japanese had reduced their use of cash during the COVID-19 pandemic.
There is also strong evidence that cash is an important store of value in Japan.
In value terms, banknotes in circulation in Japan doubled between 2000 and 2019, and the highest denomination — the 10,000 yen ($75) note — accounts for 90 percent of those banknotes.
This indicates the propensity of Japanese consumers to save in cash, particularly during times of unrest, as in the COVID-19 pandemic.
As Shirai pointed out, Japan has stayed loyal to cash despite government incentives to go digital and despite the growing availability of digital payment methods.
For example, according to a 2022 study referenced by Shirai, 90 percent of supermarkets in Japan accept credit card payments, 77 percent support QR code and/or e-money payments and 38 percent have developed their own cashless payment systems.
Moreover, no matter the technical specifications of a prospective CBDC, there is little evidence that Japan’s elderly population would be willing to adopt it.
At present, Japan has the highest percentage of elderly citizens of any country, with almost one in three people aged 65 or over.
For this demographic, who typically use cash most frequently, a CBDC would be a tough sell.
Near-zero interest rates on retail bank deposits have also contributed to a trend in cash hoarding, according to Shirai.
What’s left to like?
Given the prevalence of cash in Japan’s economy, and given the higher risks of disrupting cash in Japan compared with in other markets, Shirai said the BOJ is left with few compelling reasons to pursue a CBDC.
CBDC’s only saving grace, Shirai noted, is that by continuing to study it the BOJ will accumulate knowledge of blockchain technology that may be useful for financial stability and financial innovation.
For example, he adds that CBDC could be a “promising choice” for cross-border payments in future, given the high cost of existing bank-based services.
