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Japan’s Biggest Banks to Lead Digital Yen Experiments

As part of a group of 30 private sector companies, Japan's three largest banks are preparing to collaborate on the digital yen trial. 

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Japan’s Biggest Banks to Lead Digital Yen Experiments

As part of a group of 30 private sector companies, Japan’s three largest banks are preparing to collaborate on the digital yen trial. According to the Reuters report published on November 19, the group; It consists of banks, various Japanese brokerage houses, utilities, telecom companies and retailers.For the purposes of the experiment, private banks will be responsible for issuing the currency, according to Hiromi Yamaoka, chairman of the new group, but the possibility of others involved in the process is not ruled out. Yamaoka is a former head of Japan’s central bank and he has been reporting more and more insight into the problem of digital yen development in recent months.

Japan is known for being slow when it comes to cashless payments. 55% of payments in the US and 30% in China are made in cash. In Japan, this rate is 80%.Japan’s leading banks, Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Sumitomo Mitsui Financial Group had previously developed individual digital payment systems, including digital tokens.

However, the aim of the new project is to avoid a “silo type” platform and a fragmented digital payment environment.

“THERE ARE MANY DIGITAL PLATFORMS IN JAPAN, NONE OF WHICH ARE LARGE ENOUGH TO EXCEED CASH PAYMENTS. WHAT WE WANT TO DO IS CREATE A FRAMEWORK THAT CAN MAKE THE VARIOUS PLATFORMS MUTUALLY COMPATIBLE. “

As private banks are now developing a common payment infrastructure for the experimental digital yen, those involved are likely to see this joint effort; They hope it will compete with existing smartphone-based payment services like PayPay, a joint venture of SoftBank, Paytm and Yahoo Japan.

The challenges of creating digital yen

Earlier this week, Yamaoka identified the challenges that digital yen issuance poses for both the Bank of Japan and private financial institutions. Among these problems was the high rate of outflow from private bank deposits. Yamaoka used the following statements:

“THE MAIN PROBLEM IS TO ENSURE THAT PRIVATE DEPOSITS AND CBDCS (CENTRAL BANK DIGITAL CURRENCY) COEXIST. YOU DON’T WANT THE MONEY GOING OUT OF PRIVATE DEPOSITS. ON THE OTHER HAND, THERE IS NO POINT IN REMOVING CBDCS IF IT IS NOT USED EXTENSIVELY. “

Yamaoka, in addition to the convenience and interoperability of different platforms, is about solving this problem; He argued that it would require extensive cooperation between the central bank and the private sector.

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