TOKYO- The Bank of Japan (BOJ) will begin preparations to conduct a pilot experiment with private financial institutions next year towards issuing a digital yen, a source familiar with the matter told Reuters on Wednesday.
The move, widely expected, will follow two years of experiments the BOJ has been conducting to decide whether to issue a central bank digital currency (CBDC).
The Nikkei newspaper reported earlier in the day that the BOJ will start pilot experiments for launching a digital yen with Japan’s three megabanks and regional banks next spring.
A spokesperson for the BOJ was not immediately available to comment on Wednesday, a public holiday in Japan.
The move will come after the BOJ wraps up a second phase of its CBDC experiment that started in April, and which will last about a year.
While the BOJ has not made any decision yet on whether to issue its own digital currency, Governor Haruhiko Kuroda said in May that providing a retail CBDC could be an option to secure a seamless and safe infrastructure in Japan.
Kuroda also called at a seminar at that time for increased efforts by global policymakers to contain risks that may emerge from the wider use of private digital currencies.
A global front-runner, China has already run tests in major cities for a possible launch of a digital yuan next year. Japan, along with other G7 advanced nations, have moved much slower.
The BOJ only started the first phase of its experiment in April, and says it has no immediate plans to issue a digital yen. Pilot programs, if any, won’t take place until 2023 at the earliest.
That lukewarm stance may be put to test as Kishida has made economic security a policy priority, and framed questions around CBDC beyond finance into one of national security.
While G7 central banks generally agree on the need to counter China on issues around privacy, the case is particularly strong for Japan as lawmakers worry about the growing economic might of its assertive neighbor.
Some influential ruling party lawmakers see China’s advances on CBDC as a potential threat to the dollar’s status as a global reserve currency, and the financial dominance of Washington – Japan’s biggest ally.
A close aide to Prime Minister Fumio Kishida told Reuters Japan must “work closely with the United States to counter any attempt that threatens the dollar’s reserve-currency status,” adding the BOJ was coordinating with the finance ministry to ensure speedy progress for issuing a digital yen.
Opposition parties have also called in their election campaign platforms for speeding up CBDC plans.
BOJ officials say China’s plan won’t directly affect the timeframe for their CBDC experiments as the key purpose of issuing a digital yen is to provide convenient, efficient payment and settlement means to the public.
