This is a speech by Masayoshi Amamiya, vice president of the Central Bank of Japan, at the Tokyo future payments forum 2020.

When considering the issue of central bank digital currency, we should pay attention to “three invariants” and “three changes” concerning payment and settlement system and currency.


I would like to thank you for attending today’s Forum on future payments.

Recent private sector initiatives (including stable currency) have shown that customers need convenient, fast and efficient payment methods. To meet this demand, the central bank should work with the private sector and continue to improve the payment and settlement infrastructure it provides. In this regard, the issue of whether the central bank should issue a digital currency (CBDC) has become an important issue.

As we look at the future of Japan’s payment and settlement infrastructure, it is important in a digital society to consider the form in which the central bank should provide central bank funding and how to improve private sector payment services. These two issues are closely related and should not be studied separately. I sincerely hope that we can have a fruitful exchange of views, because there are so many experts here today at the “future payments” forum.

In addressing these issues, it is important to explore how it innovation and private sector initiatives affect payment and settlement systems and monetary architecture. Before we begin our discussion, I would like to talk about “what will remain unchanged” and “what will change” in the foreseeable future.

What are the changes and invariance of the central bank's digital currency

The central bank should pay attention to “three invariants” in the process of issuing digital currency

With regard to payment and settlement systems and currencies, three things will not change or should not change.

First, the basic structure of the currency will remain unchanged. There are two forms of money: token based or account based. Token based money is a form of money in which the value of money is stored locally in a medium. Cash and electronic money issued by Japanese transport companies are examples. The types of media (i.e., paper and electronic devices) that store the value of money vary, but the basic architecture remains unchanged, that is, payments are made by transferring the value of money stored in that medium. At the same time, when the issuer receives the value transfer instruction from the payer, it debits from the payer’s debit and credits the payee’s account credit. A typical example of account based currency is bank deposits. The payer can send bank transfer instructions to his bank in a variety of ways (e.g. through bank teller counter, online banking, credit card and debit card), but the basic structure remains unchanged. Today’s non bank payment service providers (nbpsps), which are leading the expansion of Japan’s cashless society, also issue account based currencies. Users send value transfer instructions to their accounts via smartphones to make payments. Future payment services may be developed in one of two forms: token based currency or account based currency.

Second, the two-tier monetary system will remain unchanged. This is something that should not be changed and should be maintained. In the two-tier system, the money provided by the central bank consists of cash and central bank deposits. Private banks provide deposits through credit creation based on central bank money. Under the two-tier system, financial resources are effectively allocated through a private led scheme, which has the advantage of making full use of private sector innovation in payment services. In fact, money issued by nbpsps (such as fintech companies), whether token based or account based, is generated by equivalent conversion of cash or bank deposits. The presence of a large number of private currency issuers will maintain a competitive advantage in providing new and effective payment methods and financial services in general.

Third, the basic role of the central bank will remain unchanged. Even if the use of banknotes continues to decline and the Japanese economy enters a cashless society, the Bank of Japan will implement monetary policy under the two-tier monetary system by controlling the central bank’s current account (i.e., digital currency) and act as the “lender of last resort.” Central banks may face challenges, such as the complexity of money transmission channels or the difficulty of mastering money. But these challenges are not new to us. No matter what changes have taken place in the payment service and monetary environment with the development of it innovation, the central bank will basically maintain its responsibility and ability to maintain monetary and financial stability.

“Three changes” in the process of issuing digital currency of central bank

In contrast, how will payment and settlement systems evolve with it innovation? Now, I want to talk about three things that will change.

First, cashless payments will grow steadily in retail payments. In fact, with the exception of special circumstances such as Sweden, the cash balance in circulation of major developed economies has been increasing. In Japan, the number of people using cashless payments appears to have increased since the government launched the “consumer points incentive program using cashless payments” in October 2019. However, at the same time, the amount of outstanding cash in circulation has increased by 2% per year. The preference for cash is still surprising. Having said that, with the advent of new services and a better understanding of their convenience, the move towards a cashless society will not be hindered in the long run.

Second, the diversification of payment service providers is likely to continue. The latest developments in cashless societies seem to be dominated by nbpsps (such as large high-tech companies, financial technology companies, retailers and transportation companies) rather than banks. For example, digital currency issued by money transfer service providers commonly known as “XYZ pay” and issuers of prepaid payment instruments such as retailers and transportation companies are different from traditional cash and bank deposits, and the use of this digital currency appears to be expanding. Diversification of payment service providers may have various impacts on financial regulations and the operation of payment and settlement systems operated or managed by central banks and the private sector.

Third, money and data will become more closely linked. Many nbpsps offer convenient cashless payment services. Their purpose is not only to improve the convenience of customers, but also to expand their ecosystem through network effects by inducing customers to use other related services provided by nbpsp. The strategy is called “data network activity (DNA)”. In the past, payment shopping, in other words, was the exchange of a certain amount of economic value with money. Today, it also means exchanging data about who bought what, when and where. In some cases, the data exchanged can be data that has just seen an online ad but has not purchased anything. Therefore, as we explore the future of payment and settlement systems, it becomes particularly important to discuss issues related to the protection and effective use of personal data.

Discussion on CBDC of foreign central banks

What role and function is CBDC expected to play in this rapidly changing world of payment and settlement systems and monetary environment? The investigation of foreign central banks on issuing central bank CBDC can be divided into three categories.

The first is Sweden. In Sweden, the decrease in outstanding cash in circulation has reached less than 2% of GDP, which is their motivation to explore the possibility of issuing CBDC. As a result of the significant increase in cashless payments, the number of retail stores accepting cash has decreased, and people sometimes encounter difficulties in using cash for daily shopping. In this case, the goal of the central bank is to provide access to central bank funds for all.

Then there are emerging economies like Cambodia and the Bahamas. In these economies, the infrastructure related to local currency and payment is still immature, but smartphones have spread all over the world. In this environment, rebuilding payment and settlement systems from scratch is a viable agenda, and it will be easier to adopt the latest technologies.

The third is the situation in China. Although the details of the design are not yet clear, according to information released officially so far, the people’s Bank of China (PBOC) apparently aims to issue CBDC instead of cash in circulation. The people’s Bank of China will not only focus on reducing the cost of cash processing, but also on addressing the risk of forgery, as well as preventing money laundering and combating the financing of terrorism (AML / CFT).

In major developed economies, including Japan, the situation is different. As mentioned in the above countries, the demand for CBDC will not necessarily increase. In many developed economies, the amount of outstanding cash in circulation is still increasing year by year. At this point, there is no need for new initiatives to ensure that people can use the central bank’s currency. Moreover, their monetary systems, as well as their payment and settlement systems, are operating safely and steadily. They can’t simply turn to new technologies, or they shouldn’t. Anti money laundering / combating the financing of terrorism is an important issue, but the most advanced economies believe that it should be addressed first and foremost through regulatory and supervisory measures.


So, in addition to the roles and functions discussed in these cases, what are the expected roles and functions of CBDC? To answer this question, it may be useful to review the basic role of money. In this way, not only the potential benefits of CBDC, but also various problems to be solved will be exposed.

In order to support economic activity, there must be a safe, reliable, cheap and universal means of payment for all. Most agree that even in a digital society, central banks should play a role as providers of such instruments. CBDC is expected to play a role. I’d like to share a point that payment service providers often express.

As mentioned earlier, the entry of new service providers into the payment market is one of the key changes in the field of payment systems. In this sense, ensuring interoperability between private digital currencies is a challenge. For example, payment platforms operated by nbpsp (such as “XYZ pay”) do not necessarily share member merchants. In other words, it is usually the case that the digital currency issued by nbpsp cannot be accepted by another nbpsp member. Similarly, point to point payments or remittances cannot be performed between payment platforms operated by different nbpsps.

What role is CBDC expected to play in these situations? CBDC can help remove the barriers to point-to-point payment and significantly improve the interoperability between different types of private digital currencies. By linking various types of private digital currencies, CBDC can contribute to improving payment efficiency. In fact, CBDC seems to have high expectations in this regard.

But it’s not easy. With regard to CBDC, there are many issues that need to be considered comprehensively, including its impact on the payment and settlement system and the financial system as a whole. As mentioned earlier, while the issuance of CBDC can facilitate the interconnection of various types of private digital currencies, there may also be a risk of crowding out existing private services, such as bank funds transfers. In addition, if the payment costs associated with CBDC are much lower than those of private payment services, most businesses will be more willing to accept payments through CBDC than through private digital currency. The central bank is able to provide services that are cheaper than private entities, because from the perspective of providing public goods, the central bank bears certain costs, that is, the core infrastructure for payment and settlement. Depending on the design and pricing of the core infrastructure, central banks may stifle private enterprises and impede innovation.

In addition, if businesses and individuals prefer to hold CBDC rather than bank deposits, this will affect the bank’s capital and financial intermediation functions, including bank loans. As a result, it could change the dual currency system itself.

It should also be noted that, as mentioned earlier, with the development of digitization, money and data will become more closely linked. If the central bank issues a CBDC, the relevant transaction information will flow into the central bank. Its meaning is not only about the protection of personal information, but also about what kind of system design the society needs in order to effectively use this business information for commercial purposes.

Central banks need to deepen their understanding of the benefits, challenges and risks of issuing CBDC. In addition, with regard to challenges and risks, the central bank needs to consider whether there are effective measures to deal with these challenges and risks. There are still various problems.

In designing future payment and settlement systems, it is important to study how to improve the overall function of the system by considering the interaction between central bank money and private money. In the previous example, it is important for the private sector to improve payment interoperability, improve the efficiency of existing payment infrastructure, and eliminate friction in digital currency exchange. For example, in order to improve interoperability, different payment platforms or nbpsps can be interconnected to participate in the bank’s payment platform.


The questions I just raised are just some examples of retail payment services. There are also various cases and challenges with regard to wholesale and cross-border payments. In today’s forum, we will hold separate meetings on retail, wholesale and cross-border payment. I hope this forum will provide an opportunity to consult experts and discuss the future of payment and settlement systems. Therefore, the Bank of Japan will continue to host the “future payment forum” in the future. In addition, the Bank of Japan has just established a research group on CBDC within the Department of payment and settlement systems, and will further study various issues through information exchange and discussions with Japanese experts and relevant institutions and other central banks.

Editor in charge: CT

Leave a Reply

Your email address will not be published. Required fields are marked *