Will Japanese Yen Banknotes Become Extinct?

According to the Japanese newspaper Asahi Shimbun on July 3, Japan issued a new version of banknotes again on the 3rd after a lapse of 20 years. The 10,000 yen banknote is printed with the head of Shibusawa Eiichi, while the 5,000 yen and 1,000 yen are printed with the portraits of Tsuda Umeko and Kitasato Shibasaburo respectively. Nakajima Masashi, a professor at Reizawa University who once worked at the Bank of Japan (central bank), predicted: “As a large-scale circulating banknote, this time the issuance may be the last version of banknotes in Japan.” In recent years, the cashless society has been gaining momentum, especially for young people, who have fewer and fewer opportunities to contact cash. If the next revision is 20 years later, it will be in 2044, when a new “currency” different from banknotes may appear.

According to statistics from the Ministry of Economy, Trade and Industry of Japan, in Japan, the proportion of cashless settlements in 2023 has reached 39.3%, an increase of 1.6 times compared with 15.3% in 2013.

The emergence of central bank digital currency may further accelerate the arrival of a cashless society. It is a currency that exchanges banknotes and coins electronically and can be used through smartphone applications and QR codes. If the central bank switches from cash to central bank digital currency, the central bank can reduce the cost of printing and circulating banknotes, and banks can also significantly reduce the number of ATMs.

If it is a private cashless payment scenario, retail stores need to introduce terminal equipment and pay handling fees to settlement companies. But central bank digital currency can save these troubles and complete transfers “anytime, anywhere”.

Although Japan has not yet determined the time point for the launch of the “digital yen”, related tests are also underway. In April 2023, Japan’s three major banks began testing the transfer system at the same time, which is scheduled to be completed in a few years. The government also released a mid-term summary of relevant views in April this year to study the legal preparations that must be completed for the introduction of the digital yen.

Central bank digital currency has already had precedents overseas. The central bank of the Bahamas in Central America launched the world’s first central bank digital currency, sand dollar, in October 2020. The People’s Bank of China has also begun testing the “digital RMB” in some cities. The European Central Bank also released the EU’s draft rules on the “digital euro” last year and will launch discussions at the European Parliament level this year.

A relevant official from the Japanese Ministry of Finance said: “Once the central bank’s digital currency begins to be used on a large scale overseas, we must also prepare in advance for its launch as soon as possible.” However, it also faces challenges such as cyber attacks and protection of personal information.

Currency has always changed its form with the development of technology. Paper money also appeared about 1,000 years ago with the advancement of printing. Professor Nakajima of Reize University pointed out: “If the digital transformation of the whole society continues to advance, more convenient currencies that follow this trend will definitely appear.”