That was one takeaway from a new conversation with Bank of Japan deputy director general Yuko Kawai, head of the central bank’s fintech center. In an exclusive interview, Kawai discussed how blockchain is emerging as one of the “hottest topics” among central banks, and how her own institution is working to get up to speed on the technology.
Speaking on whether central banks should play a role in developing new platforms and technologies, she reported that her institution and its peers are looking to the private sector to provide the leading area of activity.
Kawai told CoinDesk:
“We believe technologies should be developed in the private sector. Talking about a global platform or the joint research between the public and private sectors, I don’t think we’re at that stage.”
Kawai pointed to the Japanese market as one where private institutions are already leading the charge, citing a consortium led by the Japan Exchange Group (JPX) as the epicenter of local research and strategy. JPX announced in March that it had 26 members – including Mizuho Bank, Nomura Holdings and Bank of Japan – involved in its work.
As for work with other central banks, however, Bank of Japan has gone public with one formal partnership, unveiled with the European Central Bank earlier this year.
The two organizations are now working on tests that explore how distributed ledgers could be applied to market infrastructure. As explained by the ECB’s Dirk Bullmann in an interview last week, the ideas is that banks would be able to prioritize how payments are cleared.
“We are trying to replicate the interbank payment system and trying to apply the blockchain in a closed system,” Kawai affirmed.
Still, despite her organization’s interest in the area, like other central banks, the Bank of Japan still believes it’s too early to use the technology in its financial market infrastructure. Despite its strong rhetoric, the Bank of England recently pulled back on its blockchain work, opting for a ‘DLT-compatible‘ infrastructure for its new settlement system.
“I don’t think we can say that blockchain technologies or other technologies are mature enough to be applied to the real world,” Kawai continued.
Aside from its study with the ECB, Bank of Japan said it does not have any proof-of-concepts running related to the technology.
Coordination not consortiums
Another topic addressed was the possibility that, like the private sector, global central banks could take an interest in collaborating broadly on distributed ledger tech.
Here, Kawai sidestepped the idea there would be any formal collaboration akin to R3, the consortium of more than 80 global banks designed to focus on DLT applications. “Coordination can mean anything. If you mean we are exchanging information, the answer is already yes,” she said.
Kawai went on to address the idea of a central bank digital currency (CBDC), one she said “almost all central banks” are studying. The People’s Bank of China, for instance, published a new opinion piece on CoinDesk last week in which it looked in depth into that idea.
Still, Kawai said that the organization sees this as more of a topic of intellectual interest than operational strategy.
“Will we be issuing a digital currency any time soon? I don’t think so, but we are researching it and trying not to be too ignorant about the technology,” she said.
In this way, Kawai framed Bank of Japan’s exploration of blockchain and distributed ledgers as part of the bank’s responsibility. While not a market regulator – a job for the country’s Financial Services Agency (FSA) – she described her department’s role as a gateway of information to the wider organization.
Still, there’s the question of whether Bank of Japan is truly moving at the pace of the market, given that the country is emerging as one of the most forward on the technology.
One key difference is that, despite early setbacks, Japan is now home to the dominant market for bitcoin trading, outpacing even the US dollar market, according to data provider CryptoCompare. Sensing an opportunity, private sector companies are beginning to move in.
Encouraged by the use of digital money and payment more broadly, companies including internet services provider GMO Internet and SBI Holdings are gearing up to launch bitcoin exchange offerings that would compete directly with domestic exchange startups including Quoine, Coincheck and BitFlyer.
However, Kawai said that the Bank of Japan shouldn’t discourage private sector innovation relating to the use of bitcoin and other cryptocurrencies.
“We are very interested in cryptocurrencies and how they will work in a bank ecosystem. If bitcoin could become ever sizable enough to affect the traditional financial market, bitcoin and cryptocurrencies might have that potential in the future,” Kawai explained.
“If that age comes in the future, we can’t be behind.”
Bank of Japan image via Facebook