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A man walks past the Bank of Japan headquarters in Tokyo on May 22, 2020.

KIM KYUNG-HOON/Reuters

Japan will likely need several years before it can issue a digital currency due to various hurdles including the need for measures that would prevent huge outflows from private bank deposits, a former Bank of Japan executive said on Tuesday.

The Japanese central bank plans to begin experiments next year which will look at whether it can issue a digital yen – a move that comes as other central banks step up the pace of their digital currency development.

Hiromi Yamaoka, who now chairs a group of banks looking at building a common settlement infrastructure for digital payments, said one idea to prevent sudden big outflows would be to set a limit on the amount of central bank digital currency (CBDC) a single entity can hold.

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But imposing limits would also enhance the value of CBDCs, and lead to fluctuations in conversion rates for CBDCs to other forms of money like cash and private deposits, he told Reuters in an interview.

That would make payments and settlements less convenient, running counter to the purpose of issuing CBDCs, he said.

“The fundamental question, and a very tricky one, is how to ensure private deposits and a CBDC co-exist. You don’t want money rushing out of private deposits. On the other hand, there’s no point issuing a CBDC if it isn’t used widely,” he said.

For the time being, Yamaoka said the BOJ and the private sector can work together to make digital settlements more convenient, noting the private sector has a key role to play in helping make various settlement platforms mutually compatible.

During his stint as head of the BOJ’s division overseeing payment and settlement systems, Yamaoka was directly in charge of the central bank’s research on digital currencies including a joint experiment with the European Central Bank.

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