Japan is ready to embark on a major push toward the development of a digital currency.
A group of about 70 Japanese companies announced this week their intention to launch a yen-based cryptocurrency next year, according to the consortium's secretariat, DeCurret, in a whitepaper and progress report published Thursday.
Mizuho Financial Group Inc, Mitsubishi UFJ Financial Group Inc, and Sumitomo Mitsui Financial Group Inc are among the major investors. They disclosed during a news conference that they have been in meetings for this project for some time.
The consortium, named Digital Currency Forum, is proposing a scheme similar to how bank deposits work to assure the digital currency's stability. Banks will issue the digital yen as collateral for their obligations, the consortium's whitepaper read.
The Kansai Electric Power Company and East Japan Railway Co. are other members of the partnership. They intend to begin testing the currency within the next few months.
The initiative is distinct from the Bank of Japan's efforts to establish a digital yen. China and the United States are also exploring the potential use of CBDCs.
The consortium's subcommittee on Settlement in Industrial Distribution, sponsored by Mitsubishi, would conduct a test of "automated execution of contracts utilizing digital currency in the settlement of maritime transportation transactions," the whitepaper said.
There is an additional motivation for Japan to pursue the digital strategy. It is a country renowned for its fondness for cash. Even as recently as 2018, almost 80% of all retail transactions in the country were carried out using notes and coins.
Cryptocurrencies have exploded in popularity over the last several years. From Elon Musk's Bitcoin acceptance to China's cryptocurrency ban, the crypto market's pricing has been volatile.
Despite its significance and ease of usage, countries and authorities continue to be perplexed over its legitimacy. One of the primary reasons authorities are skeptical is that no one can regulate the price fluctuations because it is based on blockchain technology.
However, if Japan is successful in developing a viable, bank-backed digital currency, it will be a big step forward in the development of digital money and will likely revolutionize the way digital payments are made.
One of the potential roadblocks for the impending yen-pegged cryptocurrency is Japan's regulatory environment. Japan is well-known for its more stringent regulations on financial markets, including the cryptocurrency space.
The consortium will also be launching a beta version of the digital currency marketplace for non-fungible tokens (NFTs) by 2022, the progress report added.
