Stunning Japanese Admission About China May Foreshadow Digital Currency Breakthrough

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Forbes | Steven Ehrlich | Jan 27 2020

japan and digital currency - Stunning Japanese Admission About China May Foreshadow Digital Currency Breakthrough There are at least 18 central banks developing a form of sovereign digital currency, according to a recent survey from crypto news outlet The Block. Some such as China see the efforts as a way to reduce fraud, increase financial transparency, and support flagging economic growth. Others like Iran and Venezuela are looking for ways to evade global sanctions. Finally, tinkerers such as the European Central Bank are making somewhat symbolic efforts as a hedge against Libra, to placate impatient innovators, and use them as an opportunity to learn.

See: Central Bank Digital Currency and Fintech in Asia

For this latter group, it would be great if something beneficial comes out of this experimentation, but there is no real sense of urgency.

The same cannot be said about Japan, where senior leaders took the extraordinary step of not only reversing recent guidance from the Japanese Central Bank saying that they weren’t pursuing a form of digital currency, but admitted that a primary reason for doing so was concern about what may happen if China’s far more advanced efforts succeed.

Drawing a Line in the Sand

Consider these recent statements.

This week Norihiro Nakayama, Japanese Parliamentary Vice Minister for Foreign Affairs, told Reuters, “China is moving toward issuing digital yuan, so we’d like to propose measures to counter such attempts.” Not to be outdone, earlier this month former Prime Minister and Current Finance Minister Taro Aso said that it would be a “very serious problem” if digital yuan becomes a popular means for international settlement.

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Best of Enemies

There are geopolitical and economic reasons why China’s attempts to corner the market on CBDCs are seen as an existential threat in Japan. First, for as technologically advanced as Japan’s economy has become, it is highly reliant on global supply chains and vulnerable to trade tensions, such as the recent hostilities between the U.S. and China. Additionally, it has extremely limited fossil fuel deposits and must import most of these precious resources from precarious regions in their own right. As an example, 80% of its oil comes from the Middle East.

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