Japan finance officials said there should be more clarity on the state of the nation's digital currency late next year. A politician overseeing the ruling party's plans for the digital yen said the development plan for the digital currency should enter its second phase by 2022.
The Bank of Japan originally launched the first phase of its central bank digital currency (CBDC) experiment in April. Japan aims to join its international counterparts in the development of a sovereign digital currency to match the rapid pace of financial technology innovation.
Officials said that once the digital currency enters its second phase, more details of its key functions will be made public. Some of the key functions that are currently still being worked on include which entities will be allowed to serve as intermediaries between the central bank and deposit holders. Analysts said this is expected to spark a turf war between traditional and online lenders.
"By around the end of next year, we'll have a clearer view of what Japan's CBDC would look like," the head of the ruling Liberal Democratic Party's panel on digital currencies, Hideki Murai, said.
Murai said they are still trying to study how the CBDC could affect existing financial institutions. He said they first need to determine whether the digital yen could crowd out or meddle with private Japanese businesses.
Murai said Japan is already in the middle of a massive shift to other online settlement means. He said if they should decide to make commercial banks the key intermediaries for the distribution of the CBDC, it should shift the balance back to traditional banks.
"If the BOJ were to issue CBDC, it would have a huge impact on financial institutions and Japan's settlement system. CBDC has the potential to completely reshape changes occurring in Japan's financial industry," Murai said.
Murai said the central bank is also working on ways to ensure that the digital yen will be compatible with other digital currencies being developed by other nations. The Group of Seven is currently looking into the core features of digital currencies to counter China's rapid progress toward developing its own digital yuan.
"If a digital yuan becomes so convenient it's frequently used by tourists or becomes the main settlement means for trade, the relationship between the yen and yuan could change and erode the yen's status," Murai said.
