TOKYO (Kyodo) -- The Bank of Japan said Friday it will start a feasibility study on digital currency in fiscal 2021 beginning in April as the expansion of cashless payments and cryptocurrencies has forced central banks to consider their response to technological innovations in recent years.
The BOJ currently has no plan to issue digital currency. But it will collaborate with other central banks and fintech firms in the study.
The BOJ "will explore general purpose CBDC in a more concrete and practical way by conducting experiments, rather than confining itself to conceptual research as before," it said in a statement, referring to central bank digital currency.
"The bank considers it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner."
So far, no major central banks have officially decided to issue CBDC. However, Peoples' Bank of China Governor Yi Gang said in May that the Chinese central bank has started trial payments of digital yuan in some cities, a move seen as an apparent challenge to the international currency system based on the U.S. dollar.
The BOJ said demand for cash in circulation will not drop significantly for the time being. But the central bank said it "might provide general purpose CBDC as a payment instrument alongside cash" if public demand for cash weakens and "if private digital money will not substitute for the functions of cash sufficiently."
Following the feasibility study, the BOJ plans to go into further trials that would also involve payment service providers and end users.
In the private sector, three Japanese megabanks and companies providing cashless payment established a consortium in June to study interoperable electronic money that could lead to the introduction of the "digital yen."
The BOJ in July set up a new division to explore the possible issuance of digital currency.
In a related development, seven major central banks, including the BOJ, the U.S. Federal Reserve and the European Central Bank, and the Bank for International Settlements said Friday that CBDC could promote innovative payments.
CBDC could "promote more resilient, efficient, inclusive and innovative payments" if risks are effectively overcome, the lenders said in their first joint report on CBDC.
The seven central banks -- the BOJ, the Fed, the ECB, the Bank of England, the Bank of Canada, Swiss National Bank and Sweden's Sveriges Riksbank -- had jointly launched their study on CBDC in January.
They also agreed on other foundational principles, such as that CBDC should "do no harm" to monetary and financial stability and "coexist with cash and other types of money in a flexible and innovative payment ecosystem."
The report also said "a CBDC must be convenient and available at very low or no cost to end users," while the system should be "extremely resilient to operational failure and disruptions," possibly triggered by cyberattacks and other threats, and ensure effective protection from counterfeiting.
The report said transfers between CBDCs could be realized through international collaboration from the outset, but it also said "national priorities and domestic circumstances will determine designs (of CBDCs)."
There will be no "one size fits all" CBDC, it added.