Cash-loving Japan is designing a "digital yen." China has already folded its digital currency into real economic life, the EU is aiming at a 2029 launch, and the US has banned central bank digital currencies outright. As the world splits into three camps, what path is Japan choosing?

What Is a CBDC and Why Should You Care?

A CBDC (Central Bank Digital Currency) is digital money issued by a country's central bank. In Japan's case, it would be a "digital yen," essentially a digital version of the banknotes and coins you might already have in your wallet, but backed by the Bank of Japan with the full faith and credit of the government.

You might wonder: "Isn't this just like Apple Pay or my banking app?" Not quite. When you use PayPay (Japan's most popular mobile payment) or a credit card, your money sits as a balance in a private company's system. A digital yen would carry the same guarantee as physical cash: no credit risk, no middleman between you and the central bank's promise.

What Did Japan's 10th CBDC Expert Council Reveal?

On May 27, 2025, Japan's Ministry of Finance held the 10th meeting of its CBDC Expert Council, bringing together professors, lawyers, and economists led by University of Tokyo Professor Noriyuki Yanagawa. The meeting reviewed the "Second Interim Report" on CBDC institutional design, published five days earlier on May 22 by a cross-ministry liaison council that brings together the Ministry of Finance, the Financial Services Agency, the Digital Agency, the National Police Agency and other bodies alongside the Bank of Japan.

The work has continued since: the liaison council issued a progress report on June 19, 2026, and the Ministry of Finance convened the 11th expert council meeting on June 25.

Three major themes emerged from the discussions:

Legal Framework: The digital yen would be classified as legal tender, meaning it would carry the same legal weight as physical cash. However, unlike cash, its digital nature offers "traceability." If your digital yen were stolen through hacking or fraud, authorities could potentially track and recover it, something impossible with a lost ¥10,000 note.

Privacy Protection: Japan is adopting a "two-tier model" where the Bank of Japan manages the ledger (the system recording balances and transactions) but never sees personal information. Your bank or payment provider, called an "intermediary institution," handles all identity verification and customer data. The BOJ literally cannot identify who made any particular transaction.

Coexistence with Private Payment Services: Rather than replacing existing cashless services, the digital yen is meant to connect them. Imagine being able to send money seamlessly from your PayPay account to someone's Suica card, or from one bank's digital wallet to another's, with the digital yen as the common bridge making it possible.

Verifiable Credentials: The Identity Tech Behind Digital Currency

Running parallel to the digital yen discussion is a technology called "Verifiable Credentials" (VCs). Japan's Digital Agency launched a dedicated expert council on VC governance in March 2025, and the BOJ's CBDC Forum working groups are exploring the technology.

Think of VCs as tamper-proof digital versions of your ID documents. When you buy alcohol in Japan today, you show your entire driver's license, revealing your name, address, birth date, and more, just to prove you're over 20. With VCs, you could prove "I am over 20" without revealing anything else. The cryptographic signature guarantees it's legitimate, without exposing unnecessary personal data.

For the digital yen, VCs could reshape KYC (Know Your Customer), the identity checks required when opening financial accounts. Instead of submitting documents to every new service, you'd verify once and securely reuse that verification. Japan's My Number Card (a national ID similar to a Social Security card but with a chip) is being explored as the foundation for a digital identity wallet that could integrate with CBDC services.

The Global CBDC Landscape: Three Very Different Paths

China's e-CNY: The Pioneer Already in People's Pockets

China's People's Bank is the most advanced among major economies. The digital yuan (e-CNY) is already being used in real transactions across multiple cities, paying government employees, distributing shopping coupons, and even enabling foreign tourists to load e-CNY via overseas credit cards.

In 2024, China unveiled a card-type "hard wallet" with a small display showing balances and QR codes, designed for users without smartphones. However, adoption among ordinary citizens remains limited, as the entrenched ecosystems of Alipay and WeChat Pay (with over a billion users each) make switching costly and inconvenient.

EU's Digital Euro: The Sovereignty Play Targeting 2029

The European Central Bank began preparing for a digital euro in 2020 and completed its "preparation phase" in October 2025. The plan: EU Parliament votes on enabling legislation in 2026, a pilot launches in 2027, and the first digital euros are issued in 2029. The ECB puts development costs at roughly €1.3 billion up to first issuance, plus about €320 million a year to run afterwards.

The driving motivation is "payment sovereignty." Visa, Mastercard, and PayPal, all American companies, dominate European electronic payments today. The ECB explicitly frames the digital euro as essential for European strategic autonomy in an era of geopolitical tensions. The European Council backed the project in December 2025 and the European Parliament followed in February 2026, strengthening the political push behind the legislation. The final call on whether to issue, and when, rests with the ECB's Governing Council once the law is on the books.

The United States: CBDC Banned, Stablecoins Embraced

In January 2025, President Trump signed an executive order explicitly prohibiting any federal agency from establishing, issuing, or promoting a CBDC, at home or abroad. All existing CBDC research initiatives were ordered to cease immediately.

Instead, the US is backing private dollar-backed stablecoins like USDC and Tether as its digital currency strategy. The rationale combines privacy concerns (government surveillance fears) and free-market principles (letting private innovation lead). Congress is working to make this ban permanent through the "No CBDC Act."

The result is a striking divergence: the US trusts private companies with digital money but not its own central bank.

Japan's "Third Way": Cautious but Thorough

Japan's approach defies easy categorization. It is neither China's rapid deployment nor America's outright rejection, but meticulous preparation paired with stakeholder engagement.

The government repeatedly emphasizes that its work "does not prejudge the introduction of CBDC." Japan remains one of the most cash-dependent developed economies. METI's figures for 2025, published in March 2026, put cashless payments at 46.3% on the international comparison measure and 58.0% on a newly introduced domestic one. The share keeps climbing, but cash still carries far more weight here than in South Korea or China.

Yet behind the scenes, the Bank of Japan's CBDC Forum brings 60 selected private companies, spanning megabanks, payment operators and IT vendors, into hands-on technical experiments. Engineers from the BOJ and private sector have jointly built a cloud sandbox environment testing APIs and use cases. This practical, collaborative approach distinguishes Japan from countries that focus primarily on policy papers.

One uniquely Japanese concept under discussion is using CBDC infrastructure as a platform for "digital regional currencies." Many Japanese municipalities have launched their own local digital currencies to stimulate local economies, but each system is built independently at significant cost. If CBDC infrastructure could serve as a shared platform, it would dramatically reduce costs and increase interoperability.

Stablecoins and CBDCs: Competition or Cooperation?

Japan revised its Payment Services Act in 2023 to create a legal framework for yen-denominated stablecoins (officially called "electronic payment instruments"), making it one of the first major economies to regulate this space.

The BOJ's working groups envision CBDC as a kind of glue connecting bank deposits, tokenized deposits, stablecoins, and mobile payments into a seamless ecosystem. Cambodia's "Bakong" system, which uses a central bank digital currency to link multiple banks and payment providers, is frequently cited as an inspiration.

The key principle is separating "cooperative domains" (shared infrastructure, where CBDC plays a role) from "competitive domains" (user-facing services, where private companies innovate). This philosophy reflects Japan's traditional approach to industrial policy: the government builds the highway, and private companies compete on how fast and comfortably they drive.

What This Means for the Future of Money

The digital yen may or may not become reality. But by building the technical groundwork, legal frameworks, and stakeholder consensus now, Japan is making sure it won't be caught off guard whichever way the global landscape turns.

What's the conversation about digital currency like in your country? Are you a cash person or all-in on digital payments? Would you trust your government to issue a digital version of your national currency? Share your thoughts in the comments!

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