Japan recently joined the club of nations globally that are considering launching a national digital currency. According to a Reuters report, the Foreign Affairs vice minister of Japan, Mr. Narihiro Nakayama, claims that lawmakers are looking into a digital yen. According to him, this project would be a joint venture between private companies and Japan’s government. He claims this would help to keep Japan ahead of the curve when it comes to the digital money sector. Nakayama added that the proposal for the digital currency could be submitted as soon as February 2020.
Why a Digital Yen
According to Nakayama, this is in direct response to China’s plan to launch a digital Yuan. While the details of China’s digital national currency are unknown, it has got Japan rattled. A major concern that Japanese lawmakers have is that China could start using the digital Yuan as a settlement currency. According to Taro Aso, who is the finance minister of Japan, this would present a major issue for Japan. The reason for this is that the nation is still heavily reliant on cash transactions, especially the US dollar.
Besides that, the announcement by Facebook Libra that it would launch a digital currency has no doubt played a role in this. The reason for this is that China increased activity around a national digital currency after Facebook announced it would launch a digital currency.
Additionally, there are fears that China could use its digital currency to spy on its citizens. This might have forced nations such as Japan to launch a national digital currency to ensure their citizens are not using a digital currency that exposes them to surveillance. However, an official from China’s central bank has said that concerns about privacy will be considered when launching the digital currency.
The Looming Libra Threat
China is very worried about the Facebook Libra project. According to a recent NPR report, the main reason for this is due to China’s current payments system. In China, mobile payment platforms such as WeChat and Alipay are already quite popular. However, those platforms are still relatively nascent. With the launch of something like Libra, it could disrupt the entire payment system of China. This would mean that the data from China’s payment system is in the hands of a foreign firm, which is something that China is not willing to accept.
However, Japan’s worries might be different from those of China. According to a recent report in Nikkei Asian Review, Japan is worried about the difficulty of regulation. The reason for this is that Libra will be pegged to a basket of international currencies. AS a result, it will not be tied to the policies of any one nation. The monetary policy of even the smallest economy in the world is usually difficult to navigate and having to try to balance the monetary policies of about six different nations would introduce a major challenge.
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