A report by Reuters Japan suggests that the Asian country is on the verge of joining the growing list of countries across the globe that are planning to issue a state-backed digital currency.
Japanese Vice Minister for foreign affairs, Norihiro Nakayama told Reuters that the legislators are exploring on issuing the Central Bank Digital Currency (CBDC) in the form of a digital Yen. Apparently, this move will be a joint venture between several private entities and the Japanese Government. The lawmakers are aiming to keep Japan at least one step forward in the cryptocurrency industry.
Moreover, the lawmakers may forward the CBDC’s proposal as early as next month, according to Nakayama. This begs the question, why is Japan so eager to enter the CBDC race? After all my research, I can only think of two major answers: Pressure from China and to counter the threat posed by Facebook’s Libra cryptocurrency.
China’s Push for a Digital Yuan
China is another Asian country that has been exploring a state-backed digital currency since 2014. The digital Yuan is already under development at the People’s Bank of China (PBoC). This move has got a lot of countries worried, Japan included. However, most details about its development have not been revealed to date.
“China is moving toward issuing digital yuan, so we’d like to propose measures to counter such attempts,” Nakayama claimed on Thursday.
Japan’s major worry is that China is developing digital Yuan as a legal tender. Japan basically employs the dollar to transact. As per the country’s finance minister, China’s CBDC would be a “very serious problem” due to the fact that most Japanese prefer Cash.
Additionally, there is a spreading concern that China might use its CBDC as a financial surveillance tool; to monitor the user’s spending habits. However, the head of PBoC’s digital currency research institute, Mu Changchun made an effort to calm the unrest. He said the upcoming digital Yuan is not an attempt to spy on users and people will be able to carry out private transactions.
China has accelerated in developing its digital currency lately. In fact, it is the launch of Facebook’s Libra project that has hastened China’s work on its state-backed cryptocurrency. This is as per PBoC’s Director Wang Xin.
The Danger Posed by Facebook’s Libra Cryptocurrency
Major countries have presented a lot of obstacles towards the launch of Facebook’s Libra project since it was announced back in June 2019. Despite the challenges, Libra keeps pressing on. The Libra Association formed a new ‘Technical Steering Committee’ which will consist of five initial members. The committee will superintend the development of the project.
In an interview with NPR, Chuanwei Zou of Bitmain explained that Facebook’s Libra cryptocurrency “represents a huge threat” to the prosperity of mobile payments. Chinese platforms such as WeChat and Alipay faces a huge challenge from Libra.
However, Japan has different worries regarding the launch of Libra cryptocurrency. A report back in July hinted that Japanese legislators were concerned that Libra would be hard to manage. According to the lawmakers, the stablecoin is backed by a basket of different fiat currencies. Hence, it cannot be pegged to a single country’s politics.
In the near future, Japan, China, and all other concerned states may not have to worry about Facebook’s Libra. Major members of the Libra Association have left the project with telecom company Vodafone being the latest to abandon them. The project may be weakening.