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Bank of Japan to Conduct "Experiments" on Central Bank Digital Currency

Steven.Lofchie@cwt.com's picture
Commentary by Steven Lofchie

The Bank of Japan ("BoJ") issued a report on its latest approach to Central Bank Digital Currency ("CBDC"). The BoJ stated that it will begin to "explore general purpose CBDC in a more concrete and practical way by conducting experiments, rather than confining itself to conceptual research as before." Specifically, the BoJ stated it will begin phased experiments in early fiscal year 2021 to "test the technical feasibility of the core functions and features required for CBDC through a Proof of Concept (PoC)" and then "consider the need for a pilot program if necessary." Further, the BoJ said it will deepen its exploration of institutional arrangements in tandem with experiments," and will continue "to closely coordinate with other central banks" and to use the information obtained in its "CBDC exploration."

Commentary

The issuance of CBDC is inevitable. Once a financially strong country takes the leap, competitive economies will be forced to follow. One can reasonably predict that there will be a flight to the currencies that are perceived as the safest, with a dramatic impact on the ability of some countries and companies to borrow in their domestic currency. 

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