Interim Summary of the Bank of Japan Liaison Meeting on CBDC released

Today, the “Interim Summary of the Liaison Meeting between Related Ministries and Agencies and the Bank of Japan on CBDC (Central Bank Digital Currency)” was released (the Japanese original & summary are available on the Ministry of Finance website).

The document discusses the ongoing consideration by the Japanese government and the Bank of Japan regarding the potential introduction of a Central Bank Digital Currency (CBDC) in the country. It provides background information, examines the current landscape of payment methods, and delves into key issues and concepts surrounding the design and implementation of a CBDC system.

1. Introduction

• CBDCs are a new form of digital central bank money being actively explored by many countries as a complement to physical cash
• Japan has established a liaison meeting involving relevant ministries, agencies, and the Bank of Japan to comprehensively study the feasibility and implications of introducing a CBDC
• The focus is primarily on a “general-purpose” CBDC that could be widely used by individuals and businesses for daily transactions and payments

2. Current Situation

• Cash (banknotes and coins) remains an important payment method in Japan, with the amount in circulation showing an overall increasing trend in recent years
• However, the use of cashless payment methods such as electronic money, QR code payments, and credit cards is also expanding, driven by changing consumer behavior and technological advancements
• Other major countries and regions, including the United States, Europe, and the UK, are actively researching and considering CBDCs but have not yet made firm decisions on issuing them
• The Bank of Japan has conducted proof-of-concept trials and pilot experiments to verify the technical feasibility of a CBDC system and is preparing for potential future implementation

3. Concepts for Organizing the System Design

• Under a proposed “two-tier” structure, the Bank of Japan would centrally issue the CBDC as its debt, while private intermediaries (e.g., banks, financial institutions, and potentially other businesses) would handle the distribution, customer interactions, and additional services related to the CBDC
• The CBDC is envisioned to coexist with cash and other existing payment methods like bank deposits, electronic money, and QR code payments, each serving different roles and providing choices to users
• Ensuring robust security measures, protecting user privacy, and appropriately handling user information and transaction data are crucial considerations in the system design
• Legal aspects, such as the CBDC’s position within the monetary system, civil law arrangements for ownership and transfer, and criminal law provisions for unauthorized use, need to be carefully addressed
• Cost-sharing arrangements among the various entities benefiting from the CBDC introduction, including public and private sectors, must be determined

4. Cross-border Payments and Other Issues

• International cooperation and coordination are necessary to ensure interoperability between different countries’ CBDCs and payment systems for facilitating cross-border payments
• Administrative issues like identity verification methods for CBDC users, consumer protection measures, and promoting digital inclusion for all segments of society must be considered

5. Conclusion

• The liaison meeting will continue its deliberations based on this interim report, further examining specific requirements and potential challenges
• Providing clear and specific explanations to the public regarding the significance, purpose, and potential benefits of introducing a CBDC in Japan is crucial for building trust and acceptance
• Extensive discussions involving a wide range of stakeholders, including related businesses, industry associations, and consumer groups, will be essential for developing a healthy and inclusive CBDC ecosystem

The document emphasizes the complexities involved in the potential introduction of a CBDC and the need for thorough consideration of various technical, legal, policy, and societal aspects. It stresses the importance of monitoring trends in other countries, incorporating future technological developments, and ensuring broad stakeholder engagement throughout the decision-making process.

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