The Bank of Japan [BoJ] had prioritized the development of a central bank digital currency [CBDC] in July, however, as per a former executive the issuance may take several years.
Hiromi Yamaoka, who formerly headed BOJ’s division of overseeing payment and settlement systems, told Reuters that the main hurdle in from the of the bank was to prevent huge outflows from private banks deposit.
As per Yamaoka, this could be prevented by setting a limit on the holding of CBDC by a single entity. However, this could also appreciate the value of CBDCs, causing fluctuations in conversion rates when transformed into other forms of money like cash and private deposits. This would not only contradict the idea of a CBDC but also make payments and settlements less convenient.
“The fundamental question, and a very tricky one, is how to ensure private deposits and a CBDC co-exist. You don’t want money rushing out of private deposits. On the other hand, there’s no point issuing a CBDC if it isn’t used widely.”
While other countries have been competing to launch their own cryptocurrencies, Japan has been thinking about the future and the issues that could ache. The country had started to work along with the messaging service, Line for developing CBDC in October. The messaging company was discussing the application of its blockchain-based CBDC platform with multiple other Asian countries.
Among other Asian countries, China has been making a lot of noise in developing its DCEP and has been aiming for the earliest launch. Even though Japan has been a hub for solution companies like Ripple, it may not be able to participate in the race and assess the hurdles that surround its payments and settlements system.