Japan Halts CBDC Project Over Lack Of Interest

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Crypto Daily™
10w ago2022-08-02

The country’s central bank has put its CBDC pilot on hold, claiming that it requires further exploration and understanding of the market. 

BoJ Reconsiders CBDC

Back in 2021, the Bank of Japan (BoJ) was one of the national central banks across the globe that was toying with the idea of leveraging the digital currency movement and launching its own Yen-backed Central Bank Digital Currency (CBDC). The project had progressed enough that its second testing phase was due to begin in April 2022. However, the landscape has changed since last year, and the industry has lumbered through a bear market to freeze up in a crypto winter. As a result, many institutions are backing out of their crypto projects and commitments, and the Bank of Japan is one of them. The authorities are not so favorable toward the crypto space anymore. The BoJ has claimed that Japanese citizens already have viable alternatives to digital payment, and therefore it needs to revisit its plans for the digital Yen. 

Pre-Existing Digital Payment Services Pose A Challenge

Bank officials have revealed that due to the existence and widespread use of many low-cost and high-efficiency internet banking services and digital payment tools, Japanese citizens simply do not need a CBDC. Furthermore, the current payment services have various brand deals and tie-ups, allowing them to offer additional services. Users can not only use these tools to make payments and transfer funds but also gain payment points which can later be used in shopping or redeeming settlements. According to the Bank of Japan, it can not compete with this level of benefit schemes. Furthermore, a CBDC program would not receive the kind of initial momentum it requires to offer the full spectrum of benefits that cryptocurrencies entail. 

Japan’s ‘Cash Hoarding’ Problem

Another obstacle to the digital Yen program is the country's high cash issuance rate. With 20% of Japan’s nominal gross domestic product being invested in cash issuance, Japan’s older demographic is still highly cash-dependent. With the highest percentage of older citizens in the world (roughly one-third of the country’s population is aged above 65), the overall cash dependence of the country is still quite high. Additionally, Japan’s long-standing low retail deposit interest rate (just 0.001 since 2017) is boosting its already high cash circulation rate. As a result, many citizens still choose to hold on to cash instead of depositing them in bank accounts, leading to a growing cash hoarding trend. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.