China digital currency: e-yuan launch would be ‘hard to ignore’, ex-top Japanese financial regulator says

China began exploring the concept of a sovereign digital currency in 2014 following the success of e-commerce platforms Alibaba, Tencent and Baidu
China has already distributed some 200 million yuan (US$31 million) in digital currency as part of pilot projects across the country

China digital currency

Reuters

Published: 10:20am, 29 Jun, 2021

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China’s progress toward issuing a central bank digital currency (CBDC) will have a huge impact on how quickly advanced economies follow suit, former top Japanese financial regulator Toshihide Endo told Reuters.

Central banks have accelerated efforts to develop digital currencies to modernise financial systems. The People’s Bank of China is leading after launching trials, whereas the Bank of Japan (BOJ) only began its project in April.

US officials on Monday voiced scepticism about CBDCs, yet Endo said such caution may change if the world’s second-largest economy introduces one.

If it launches a CBDC, China will be armed with huge social infrastructure

Toshihide Endo

“If it launches a CBDC, China will be armed with huge social infrastructure,” Endo, who was Financial Services Agency (FSA) commissioner until 2020, said on Monday.

“It would be a move hard to ignore for other nations. Japan and other advanced nations will face the tough question of how quickly they should follow,” said Endo, who retains close ties with FSA and BOJ officials.

As FSA commissioner, Endo oversaw a range of regulation including for banks and digital currencies.

He also worked with the BOJ in prodding regional banks to streamline to weather headwind such as the profit hit from prolonged ultra-low interest rates.

Endo said the FSA and BOJ have scope to strengthen cooperation, such as by reducing areas of overlap in inspections conducted separately on commercial banks.

When will the e-yuan be launched, and what will it be used for?

Climate change is also an area the two entities must address, in coordination with the private sector, he said.

The BOJ this month said it would boost funding for fighting climate change with a scheme to incentivise banks to lend to firms or projects that help society become greener.

Wary of stepping into the realm of government policy, the BOJ has said it will leave the decision on whether loans are considered green to private banks.

“The BOJ is taking the right approach by giving the private sector discretion over which loans are green,” said Endo, who is currently senior adviser at Sony Group.

“When there is so much uncertainty, authorities shouldn’t impose rules too hastily. The process may be bumpy, but it’s best if the private sector takes the lead in creating a de facto standard.”