Over 70 Japanese Institutions Will Trial The Digital Yen

It appears Japan is next on the list to begin trialing a CBDC. A consortium of over 70 institutions has committed to exploring the digital yen built for the private sector. However, the trial will span several months and is not an indication of replacing physical money with this digital counterpart. 

Japan Explores The Digital Yen

Various countries worldwide have expressed an interest in exploring a central bank digital currency, or CBDC. Such a switch makes sense, as physical money is a hassle and feels outdated in this modern era. Most transactions already occur digitally, either via payment card or online banking. A CBDC is the next logical step in evolution, although building such an alternative is tricky.

Dozens of Japanese banks have now expressed an interest in figuring out whether a digital yen is viable. A bold move that has gained support from the country’s biggest banks, including Mitsubishi UFJ Financial Group and Mizuho Financial Group. For now, the currency goes by Digital Currency JPY, or DCJPY, which has been in development since 2020. 

The plan is to provide backing to this digital currency through bank deposits. Additionally, all participants will be fund transfers and settlements between companies over a shared platform. Intriguingly, the digital yen will be “programmable” to suit the different needs of various businesses in the country. It is unclear what this means exactly, yet the concept has a lot of merit. 

More importantly, there need to be various use cases for the digital yen. A dedicated group within the consortium will look into figuring out that aspect. Explorable options will include purchasing clean energy, retail transactions, NFTs, and more. A proof-of-concept for use cases is expected to go live in the coming months, with a full launch tentatively slated for 2022. 

Cash Remains Prevalent In Japan

Contrary to some people’s opinion, cash transactions are still relatively common in Japan. Although cashless solutions are favorable at train stations, online stores, and select physical places, over 35% of people still use cash regularly. That is a steep dropoff from nearly 80% of the population using hard money in early 2019, though. Cashless solutions are gaining momentum. Other reports indicate cash makes up over 50% of all transactions, confirming the prevalent usage. 

Even so, it seems unlikely a digital yen will make an immediate impact. As there is no infrastructure to support this currency yet, it may take years before anyone can use it for everyday purchases. Trialing the concept is an intriguing development though, especially with so many financial institutions supporting the idea.