Today, at the point where cryptocurrency technology has arrived, the most common way for states to adapt to this technology is to develop a similar currency under their own control. We see that many countries have begun to develop CBDC (Central Bank Digital Currency) that has gained popularity thanks to China’s Digital Yuan project. On the other hand, Japan is perhaps the least interested in developing its own digital currency, despite being a developed country and a pioneer in technology. Still, the Bank of Japan’s statements expressing that it was not initially interested in the topic has evolved into some superficial works as its popularity has grown.

Digital Currency Forum

The Digital Currency Forum, made up of 74 firms, is a private-sector consortium for the Japanese CBDC (Digital Yen) project. This consortium aims to ensure that this superficial progress receives a more serious infrastructure and that more concrete outcomes emerge. The Tokyo Stock Exchange is part of a consortium that includes Japanese financial giants, insurance companies, maritime transport companies. Observers include Japan’s Ministry of Finance, Ministry of Internal Affairs and Communications, Ministry of Economy, Trade, and Industry, Central Bank, and FSA (regulatory agency). The model developed greatly resembles the private sector-oriented technique used in the United States. Instead of forming a working group directly, the FED preferred to collaborate with the private sector on the Digital Dollar project. Here, similarly, we see work carried out by the private sector while the government has observer status with various institutions.

The Consortium recently issued a whitepaper for the Digital Yen Project (hereinafter DCJPY). The primary goal of the project is to integrate digital currencies with efficiency-enhancing features such as low cost, speed, and transparency into business life. The most crucial stage is the first use of the project in maritime trade. Considering that most of the world’s trade is seaborne, the meaning of maritime trade means for an island country like Japan can easily be understood.

In our article, you will learn more about the operating system of DCJPY and what amenities it should offer.

DCJPY

Bank Deposit / DCJPY

Central stable coins (USDT-USDC etc.) are introduced by reserving an amount of fiat money in the bank equal to the number of stable coins released. Although these companies are not particularly transparent, this is how the system works, at least in theory. For example, 1 USD is reserved in the bank for 1 USDT. As a result, when users wish to withdraw money, that amount will not be unbacked. The model designed for DCJPY uses a similar method. When funds in users’ bank deposits are transferred to the DCJPY account, the bank automatically transfers the equivalent amount of DCJPY to the user’s wallet. In this model, banks are the minters and custodians of DCJPY. If the user wishes to convert his DCJPY back to yen, the bank will burn the DCJPY amount and remove it from circulation and transfer the corresponding amount to the user’s deposit account.

With this model, the consortium aims to meet both the transparency and monitoring requirements of the supervisory authorities. Although the infrastructure for a similar model has been created in the U.S., it has not yet been put into practice. The OCC, the banking regulator in the U.S., had allowed banks in the U.S. to engage in activities such as custody and minting of stable coins. In Japan, we can see more concretely that this model has been put into practice. The consortium also emphasizes that this model will help stabilize the Yen and make the Bank of Japan’s monetary policy more efficient. As users deposit more money in banks to use the DCJPY, it is expected to contribute positively to maintaining the Yen’s statistical data as it will increase deposits.

Common Area and Business Area

As mentioned at the beginning of the article, the aim of using DCJPY in business, especially in maritime trade, is one of the highest priorities. Therefore, the operation of DCJPY is technically divided into two areas. Basic bank-controlled wallet transactions, such as DCJPY transfers between users, minting and burning DCJPY, are processed in one of these, namely the Common Area. In other words, the transactions of users who only want to receive money and transfer are recorded in the region determined as the Common Area.

The Business Area, on the other hand, is a sphere administered by businesses and local authorities, rather than banks, for the buying and selling of goods and services. While this region is the project’s primary usage area, significant flexibility has been given to this area.

If a firm or local authority in the Business Area wishes, it can create its token. The value to be expressed by the tokens to be created is left to the initiative of the companies/local authorities. In other words, the token to be created can represent any service or the company’s entire value. The image below illustrates this system.