10.11.2021
The United States government is pushing its allies to present a unified position on shared values and human rights, referring to China as the main security threat in the region. Joe Biden’s administration is working to rebuild security alliances in the Asia-Pacific through regional platforms such as QUAD. At the same time, Washington is trying to push forward the idea of creating digital and technological partnerships in the Asia-Pacific region that will constitute the comprehensive cooperation between Washington and Tokyo in the following years. Unfortunately, it seems that these partnerships do not cover all the aspects of the ongoing digital race. One such example is the process of developing Central Bank Digital Currencies. The developments of 2019 showed that Japan and the United States are latecomers in the race to develop digital currencies. Soon after Facebook announced a plan to introduce its digital currency, the People’s Bank of China decided to launch the Digital Currency Electronic Payment (DCEP) system testing program in Shenzhen and Suzhou cities. The governments of Washington and Tokyo were caught off guard and had to respond to the ongoing changes.
In February 2021, Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell stated that 'a digital dollar is a high-priority project for the US'. In March 2021, the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology decided to speed up their research and create prototypes for a Fedcoin platform, which could be transformed into an official US digital currency. The decision created confusion among American banks, afraid that the introduction of the digital dollar could seriously harm their profits.
Part of the financial sector in the United States supports the idea of introducing the digital dollar. A non-profit organization called the Digital Dollar Project presented plans of launching five pilot programs over the next 12 months to test the feasibility of a digital central bank currency in the United States. The initiative funded by Accenture Plc. is supposed to help Federal institutions acquire data on existing digital currency projects. Federal Reserve Chair Jerome Powell stated that the Federal Reserve Board 'will issue a discussion paper this summer, outlining our current thinking on digital payments, with a particular focus on the benefits and risks associated with CBDC in the US context.' It seems that the United States government is trying to speed up the research on digital currencies. However, at the same time, representatives of key financial institutions in the US voiced skepticism toward the necessity of introducing the digital dollar. In June 2021, Randal Quarles, Vice Chair of FED for Supervision, referred to the CBDC as a novelty that needs to be subjected to 'a careful critical analysis'.
Regarding Japan, the central bank also decided to increase efforts to prepare CBDC. In March 2021, the Central Bank established the Liaison and Coordination Committee on Central Bank Digital Currency, which acts as a platform for exchanging information between banking and private institutions. BOJ has also recently launched digital currency trials. The project aims to develop a test environment for CBDC, which would answer most technical questions about the issuance and distribution of digital currencies on a large scale. Despite launching the CBDC trials, BOJ continues to repeat that Japan does not need digital currency, calling it 'a just-in-case project with no timeline for implementation or launch.' International developments can quickly change the attitude within BOJ. In October 2021, Shinichi Uchida, Executive Director of the Bank of Japan, stated that 'there is a reasonable possibility' for a CBDC-based payment system to 'become a global standard'.
The Japanese business and private banking sectors are much more anxious to develop digital currencies than central institutions. In November 2020, two Japanese banks, MUFG and SMBC, formed a consortium with 38 Japanese companies to advance research on digital currency in Japan. There are several benefits to adopting CBDC. One such advantage is speeding up the process of shifting towards a cashless society. Unfortunately, Japan has one of the lowest rates in the number of digital payments worldwide. In 2019, cash accounted for 73.3% of the overall volume of payments. Japanese consumers remain committed to managing transactions in cash because of cultural reasons and social changes such as aging society. Therefore, they are not likely to support the idea of switching to digital currency.
The statements coming from the US and Japan show that decision-making bodies are at a crossroads and are waiting for further signals from China. At the same time, the People’s Bank of China informed that in October 2021 the number of digital yuan accounts reached 140 million. According to Frederick Kempe, president of the Atlantic Council, catching up with China is possible by developing broader international cooperation on CBDC: “The US can still win this contest if it not only quickly develops a digital dollar, but collaborates on the creation of a digital euro, a digital pound, and a digital yen. The total firepower of these currencies would close the innovation gap quickly.” Although CBDC is often discussed in the context of ongoing digitalization, digital currencies are not part of existing digital cooperation platforms between the US and Japan. The current discussion on CBDC among central banks or in the G20 and G7 forums refers to digital currency as a threat and not a potential to accelerate the process of global digitalization.