Lawmakers in Japan are set to publish proposals this week which could pave the way for digital currency use in the country, in what looks set to be a significant milestone in the development of central bank digital currencies.
Norihiro Nakayama, Japan’s vice minister for foreign affairs said the Bank of Japan was preparing to work with other central banks to develop digital currencies, in a bid to challenge the threat to currency hegemony posed by China.
Anticipating a strong digital yuan coming down the track, Nakayama said Japan would need the cooperation of the United States, as well as other central banks, to challenge any Chinese coin, according to a Bloomberg report.
“We sense the digital yuan is a challenge to the existing global reserve currency system and currency hegemony. Without the U.S., we cannot counter China’s efforts to challenge the existing reserve currency and international settlement system,” Nakayama said.
Pointing to the sheer scale of China’s economy and financial infrastructure, Nakayama said a digital yuan would be likely to emerge as the dominant currency in the digital economy.
“There are 1.4 billion people in China, so within the one belt, one road digital economic framework, the digital yuan has a high likelihood of becoming the standard within that digital economy,” he said.
He also expressed concerns about China’s influence in Africa, which could see a digital yuan quickly proliferate across the continent, piling further momentum behind its claim as a new global reserve currency.
The comments from Japan come on the eve of the publication of proposals, in the same week that a consortium of central banks from around the world agreed to pool efforts on developing digital currencies.
Prompted in part by the threat from Facebook’s Libra, central banks in Japan, Europe and Canada announced they would be working with the Bank for International Settlements in exploring digital currency technology, the Nikkei Asian Review reported.
Their collaboration will aim to develop a set of standards for digital currencies, which could ultimately allow for cross border settlement of state-issued digital currencies.
Despite the developments today, the Bank of Japan has yet to officially commit to launching a digital currency.