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Central Bank of Japan Abandoning Central Bank Digital Currency (CBDC) Initiative Due to Insufficient Public Demand

Central Bank of Japan abandons CBDC plans due to low public enthusiasm, as Japan prefers cash and private digital transactions instead of central bank-backed digital money.

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Japanese Central Bank Abandons CBDC Initiatives Due to Insufficient Public Engagement
Japanese Central Bank Abandons CBDC Initiatives Due to Insufficient Public Engagement

Central Bank of Japan Abandoning Central Bank Digital Currency (CBDC) Initiative Due to Insufficient Public Demand

The Bank of Japan (BoJ) has not yet expressed readiness to issue a Central Bank Digital Currency (CBDC) due to a lack of public interest, as most citizens in Japan are resistant to CBDCs. This resistance is not without reason, as cash remains dominant in the country, particularly among the older demographic, with a third of the population aged 65 or above.

Cash usage in Japan has not been significantly impacted by the emergence of digital payment methods. Despite the BoJ's initiation of phase 1 of CBDC testing in April 2021, cash circulation in Japan has remained at a mere 0.001% since 2017 for ordinary retail bank accounts. This trend of cash hoarding has become commonplace in Japan, disincentivizing crypto exchanges and technology firms from entering the Japanese market.

One factor contributing to cash hoarding could be the low interest rate on retail bank accounts in Japan. With a long-standing decline in the retail deposit interest rate, there has been a slight rise in cash circulation. This is in contrast to the minimal interest earned on cash, making it an attractive option for some.

Cryptocurrency remains incompetitive to CBDCs in Japan at the moment. However, the public prefers using private-sector financial services over a CBDC due to benefits such as low-cost, efficient internet banking services, and digital payment tools. Many digital payment platforms in Japan offer additional benefits like payment points for future shopping, making them more appealing to consumers.

The BoJ has previously considered the idea of a Yen-backed CBDC. The current Governor of the Bank of Japan responsible for the issuance of a CBDC-Yen is Kazuo Ueda. Nevertheless, the trend of cash hoarding may create barriers for the adoption of CBDCs in Japan, as the public finds private-sector financial services more attractive due to the benefits they offer.

Despite the resistance to digital payment methods among Japan's older demographic, cash issuance in Japan accounts for 20% of the country's nominal gross home product. This indicates a significant reliance on physical currency, which could potentially slow down the adoption of CBDCs in the future.

In conclusion, the lack of public interest in CBDCs in Japan, coupled with the country's reliance on cash, presents challenges for the adoption of digital currencies. However, as technology continues to evolve and consumer preferences change, the landscape of Japan's financial sector may shift in the coming years.

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