Wiser! Essay: Plans to launch a digital Japanese yen have been unveiled by a consortium of over 70 banks. It's not a CBDC or a stablecoin but it offers a real alternative to either of them.

Back Story: A consortium of roughly 70 Japanese firms has decided to create their own blockchain-backed digital currency.

The consortium includes the three mega-banks in Japan and has said that it aims to launch the yen-based digital currency next year. Trials will start in the coming months for the digital currency that is tentatively called "DCJPY". The digital yen will be backed by bank deposits and use a blockchain-based platform to speed up large-scale fund transfers and settlements between companies.

Unlike a Central Bank Digital Currency (which is run by a Central Bank that controls and backs the currency), the DCJPY is a bank-run program to digitize existing bank deposits. This means that participating banks will run a blockchain system that takes account holders' existing holdings and "tokenises" them, which is plain speak means (simply) that the assets are digitized so that they can be moved around the DCJPY network.

The DCJPY is the idea of “The Digital Currency Forum” which includes some 80 major Japanese companies including the banks: Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Sumitomo Mitsui Financial Group.

87 countries, representing over 90% of global GDP are now exploring a CBDC. This is up from 35 a little over a year ago, according to findings by The Atlantic Council. Seven countries have now fully launched a digital currency with a further 17 running pilot projects ahead of a full launch.

The Bank of Japan is currently running a pilot called Project Stellar to look into a CBDC. However, it is not expected to report on its findings until late next year. One of the issues for Japan, the world's third-largest economy, is the heavy use of cash in retail payments. The impact of the 2011 earthquake and tsunami, which caused widespread disruption, means that there is a greater emphasis on the ability to execute payments offline in Japan.

TakeAway:  The reason this is interesting is that this is an alternative to the idea of using stablecoins as a digital means of transferring assets. The DCJPY avoids the regulatory pitfalls of stablecoins by “turning bank deposits into digital currency DCJPY.”

The point is that the consortium is creating a new bank cash transfer system rather than minting a new currency. "It’s an ingenious solution that allows banks to go digital prior to the launch of a CBDC," said friend-of-Wiser! Richard Turrin in a Linkedin Post this week.

Richard is the smartest man I know when it comes to CBDCs, digital payments and living in China. If you really want to go deep on this subject, read his book 'Cashless'. I loved it and highly recommend you give it a go.

Here's how Richard explained the upside of the DCJPY in the context of the Bank of Japan, the world's 3rd largest reserve bank, and their plans for a CBDC.

"The interesting part is that the DCJPY actually supports the Bank of Japan's eventual roll-out of a CBDC. An advisor to the Digital Currency Forum said: “A digital currency system built on a bank deposit-backed common platform will fit the CBDC that could be planned and implemented.” The DCJPY is considered part of the private sector to support the Bank of Japan’s ongoing experiment with a national CBDC.

"This makes sense. Consider for a moment that China’s e-CNY will be able to piggyback on the digitization already carried out by Alipay.  Similarly, the DCJPY will start digitization of payments prior to the BoJ’s CBDC and eventually support the CBDC when finally issued.

"The DCJPY is a great example of how private companies can take the initiative to help build a digital currency future rather than sit passively and wait for it to overtake them!  That's what really gets me excited!"

For the record, I love DCJPY even if it's not a CBDC!  While the BoJ CBDC will bring even greater societal digitization, DCJPY is a big step in the right direction!

w/Further Reading

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Related Sources of Insight and Information

Reuters: Consortium of Japanese firms to test digital currency in coming months, launch in FY2022

CoinTelegraph: Japanese megabanks join consortium launching a yen-based digital currency

The Register: Giant Japanese corporations to launch a bank-backed digital currency

Coindesk: CBDCs Are Coming. Privately Created Stablecoins Need to Come Faster

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