Japan to launch bank-deposit-backed digital currency in this year
A new digital currency backed by bank deposits is set for a test run in Japan as early as this year, an effort that will involve the nation’s top banks and about 70 other companies and organizations.
The test run will focus on the digital currency’s feasibility for low-cost business transactions, such as large payments between companies. The group aims to bring the currency into circulation as soon as the latter half of 2022.
The Digital Currency Forum announced the trial on Wednesday. The forum includes MUFG Bank, Sumitomo Mitsui Banking Corp., Mizuho Bank, Japan Post Bank and the Nippon Telegraph and Telephone group.
East Japan Railway — which operates Tokyo’s busy Yamanote Line — top trading house Mitsubishi Corp., Kansai Electric Power and retail giant Seven & i Holdings are also part of the forum.
Japan’s Financial Services Agency and Bank of Japan will be on hand as observers.
The currency’s provisional name is DCJPY. Tests will begin this year or early next year to gauge the digital currency’s ability to handle business-to-business transactions and electric power trading.
DCJPY will use the blockchain distributed ledger technology and be backed by bank deposits. Users can start making transactions in the digital currency once they open an account.
It is expected to be used by domestic corporations and individuals, with the minimum transaction value set at 1 yen (less than 1 cent).
Electronic money is widely used in Japan as tens of millions of commuters carry Suica and Pasmo train passes that double as smart cards, but mostly for small consumer transactions.
While e-money typically cannot be converted back into cash once put on a card, digital currencies can be exchanged freely, making them more useful for businesses.
A payment platform with broad participation across different industries has the potential to improve the speed of transfers and payments while also bringing down transaction costs. Backing the currency with bank deposits is meant to bolster its credibility.
A number of the world’s central banks are launching digital currencies or considering it. The Bank of Japan does not have concrete plans to issue a digital currency at this time. But it will start second-phase experiments this coming April, focusing on conversions between digital currency and cash, as well as potential cooperation with private-sector settlement mechanisms.