Japan is considering a digital yen as a response to the digital yuan

Tokyo is reportedly discussing the launch of a digital yen as a response to the threat posed by China’s digital yuan and Facebook’s Libra.

A digital coin arms race

Lawmakers in Japan plan to introduce a proposal to the central government that will mark the beginning of a process through which Tokyo could issue a version of its digital currency. Speaking to Reuters, the lawmakers explained that they are currently drafting the proposal and will label it before parliament before the end of the month.

The move to establish a digital yen is motivated by the emerging threats posed by digital currency projects such as China’s planned digital yuan and Facebook’s Libra. The two projects have been referenced by a number of sovereign jurisdictions across the globe. Many believe that the size and influence of a digital yuan or Libra would destabilize the global financial system and would be detrimental to the sovereignty of nations across the world.

Taro Aso, Japan’s Finance Minister reiterated these fears. Aso stated earlier this month that the rise of the digital yuan as a means of international settlement would pose a “very serious problem” for Tokyo. This is because Japan settles transactions predominantly in US dollars.

The parliamentary vice-minister for foreign affairs, Norihiro Nakayama, explained: “China is moving toward issuing digital yuan, so we’d like to propose measures to counter such attempts. The first step would be to look into the idea of issuing a digital yen.”

The group of lawmakers working on the proposal to be tabled as early as next month is composed of influential ruling party members of parliament. Led by Akira Amari, formerly an economic minister, it is composed of around 70 people from the Liberal Democratic Party. The aforementioned Nakayama is part of the group.

A collaboration

The digital yen is likely still a long way off due to the significant technical and legal challenges posed by the constitutional architecture of the Asian country. However, Tokyo has been taking steps to ensure that it remains in tune with the rest of the world in terms of financial technology.

The Bank of Japan recently announced its decision to join six central banks across the world to share key expertise in the creation of digital currency, due to the threat posed by Libra. The group is composed of the central banks of Great Britain, the EU, Japan, Canada, Sweden and Switzerland.

A former head of the BOJ’s division overseeing payment and settlement systems, Hiromi Yamaoka, explained, “The latest decision (by the six central banks) is not just about sharing information. It’s also an effort to keep something like Libra in check.”

Additionally, Shinzo Abe, the Japanese Prime Minister, told the legislature on Friday that the central government is planning to work closely with the Bank of Japan to study digital currencies with the end goal of increasing the reach of the digital yen as a tool for settlement.

Japan plans to issue its digital currency as a collaboration between the private and public sectors. Former BOJ board member Takahide Kiuchi reiterated this stance, adding: “The BOJ probably won’t want to do anything that would stifle private-sector innovation. The best way could be to issue a hybrid-type digital currency that is operated and issued by private firms, with the central bank’s involvement.”

Judging by the recent announcement by leading central bankers and lawmakers, it looks like 2020 will become the year of central bank digital currencies (CBDCs). How that will affect Bitcoin and the wider crypto asset markets remains to be seen.