Minutes of the 8th Meeting of the Liaison Council on Central Bank Digital Currency

The Bank of Japan has published the minutes of the Eighth Meeting of the Liaison Council on Central Bank Digital Currency, held on November 25, 2024.

Following the opening remarks from Director Kato, the Secretariat explained the progress status of the pilot experiment (Secretariat materials, pages 1-18). After that, the Ministry of Finance discussed the status within the "Liaison Meeting among Relevant Ministries and Agencies and the Bank of Japan on CBDC". Finally, the Secretariat explained overseas trends (Secretariat materials, pages 19-33). This was followed by the statement of opinions outlined below - we provide a TL;DR, short version first, then a translation of the session minutes.

Key Points

1. Japanese Bankers Association

• Supports the API sandbox project as crucial for use case research
• Warns against over-strict AML/CFT regulations for both stablecoins and CBDC
• Suggests too strict regulations could diminish CBDC's differentiation from regular deposits

2. International Banking Association

• Notes similarities between proposed fraud detection system and current banking frameworks
• Inquired about governance of inter-ledger network connecting intermediaries

3. Japan Association of Electronic Payment Services

• Emphasizes importance of individual access to payment data
• Raises concern about potential usability differences between intermediaries
• Stresses need for inclusive design (elderly, children)

4. Regional Banks Association

• Suggests including wholesale CBDC in discussions, not just retail
• Requests clarity on discussion endpoints and implementation direction
• Concerned about operational costs and burden for financial institutions
• Raises concerns about CBDC's impact on financial intermediation

5. Second Association of Regional Banks

• Emphasizes need for clear use cases in different regions
• Requests clarification on intermediary organizations' roles
• Advocates for public funding support due to CBDC's nature as legal tender

6. Ministry of Finance

• Clarified division of responsibilities:
  • Bank of Japan: Technical aspects
  • Government: Institutional and legal aspects

7. Secretariat Responses

• Acknowledged need to balance retail and wholesale CBDC considerations
• Indicated pilot experiment is roughly at halfway point
• Recognized more items need consideration than initially anticipated
• Committed to sharing specific use cases when possible
• Emphasized need for both short-term and long-term perspective in planning

Full Discussion

• (Japanese Bankers Association): Stated that member companies are also participating in the CBDC Forum, and have heard that very meaningful discussions are taking place in each working group, and expressed gratitude for the appropriate management. On top of that, they commented on the individual working groups. First, regarding the API sandbox project conducted in Working Group 2, they stated that it is recognized as a very important initiative in terms of use case research and creation of innovation, and that they expect continued active discussion. Next, regarding Working Group 3, they stated that while they understand that discussions regarding the strengthening of AML/CFT risk management for permissionless stablecoins, including specified trust beneficiary right type, are currently underway at the Financial System Council, they think that if the management of permissionless stablecoins becomes too strict, it may lose the characteristics of permissionless stablecoins. They also think that if the response to AML/CFT is strict for CBDC, there will be no difference from existing deposits, and the significance of introducing CBDC may diminish, so they would like consideration of that point while deliberations continue.
• (International Banking Association): Regarding fraud detection, from the viewpoint of privacy considerations, if user information and transaction information are handled only in the customer management section and are separated from the ledger management section, they had the impression that there is not much difference from the current framework where financial institutions manage customer information. From that perspective, they stated that the AI scoring service, which will be launched by the joint anti-money laundering organization established by the Japanese Bankers Association, is also said to not retain user information, similar to the concept of the experimental system. They suggested that it might be good to proceed with the study while also referring to the knowledge gained from such initiatives. Also, they would like to hear the concept of the construction subject and management subject, and its governance, regarding the inter-ledger network that connects the ledger management section of intermediaries, which is being considered in the experimental system.
• (Secretariat): Regarding the inter-ledger network, it is a design for technical verification in the experimental system, and nothing has been decided at this point regarding the management mechanism, etc.
• (Japan Association of Electronic Payment Services): Stated that they consider privacy being studied in the experimental system to be extremely appropriate. On the other hand, they stated that to what extent individuals can access their own payment data is a very important point. They explained that in other countries, there are moves to protect access rights to one's own payment data as a right by establishing laws, but in Japan, it has not been established as a hard law. However, since it has recently been taken up in government conferences, etc., they want to study it in the future while referring to such discussions. Also, if CBDC becomes a model that is highly dependent on intermediaries, including the app aspect, they stated that careful adjustments will be required so that there are no differences in the usability of CBDC depending on the intermediary. Regarding this point, they stated that they believe that the discussions in Working Group 5 will become relevant in the future, and that it is necessary to build a system that is easy to use for even the elderly and children. They feel that the CBDC Forum is of great significance because it is operated to incorporate a wide range of private sector knowledge. They understand that not all the discussions in the forum will be utilized when introducing CBDC, but in the stage where CBDC is considered more seriously, they think that the key point will be how to utilize the content of the discussions in the forum. From that point of view, they asked if there are any current thoughts on how the working groups will be concluded in the future, although it may be premature.
• (Secretariat): Stated that they are receiving many useful opinions from the discussions on various topics in each working group. Also, some themes that do not fall within the scope of one working group and span multiple working groups have emerged. They stated that they will manage the forum in the future, being conscious of how to summarize the forum as a whole, taking these backgrounds into account.
• (Financial Information System Center): Stated that as discussions in each working group progress, they felt that there are increasing occasions to be conscious of the relationship with existing payment systems and institutions. While stating that the issuance of CBDC should be decided after national discussions, they stated that it will be necessary to discuss in the future from the viewpoints of what kind of system the CBDC system will be, what kind of functions it will realize, and its relationship with existing systems and institutions.
• (Regional Banks Association of Japan): Made four points. The first point is about how to proceed with future discussions in the working groups. Based on the overseas trends they heard about, they felt that the focus of the discussions is shifting from retail CBDC to wholesale CBDC. They understand that the pilot experiment is studying retail CBDC, but considering that various digital payment methods already exist in Japan, they think that discussions with wholesale CBDC in mind are also necessary. The second point is that they want the forum to be operated with an awareness of the landing point of the discussions. While they fully understand that it is difficult to have discussions with a clear landing point in mind because it has not been decided whether or not to introduce CBDC in Japan, it would be appreciated if the direction of the discussions could be made visible as much as possible. The third point, which has been mentioned before, is that if CBDC is introduced, financial institutions are expected to handle matters related to both cash and CBDC. Therefore, they would like to discuss the form of work and cost burden, including system and clerical work, closely with related parties. The fourth point concerns the impact on financial intermediation. With policy interest rates rising this year, the importance of deposits at financial institutions has increased. With this in mind, they would like careful discussion and exchange of opinions with related parties regarding issues such as how CBDC will affect financial intermediation if it is introduced.
• (Secretariat): Regarding the first point, they admitted that it is true that in some countries the focus is shifting from retail CBDC to wholesale CBDC. On the other hand, they believe that in the Japanese context it is important to consider what the needs of retail CBDC are, and how to position retail CBDC in the future image of the payment system, so they would like continued cooperation. Also, in the wholesale area, as mentioned in the Payment System Report published in September this year, they are proceeding with discussions in a form not limited to CBDC, such as through Project Agora. Regarding the second point, they asked for understanding that it is difficult to show the future direction etc. at this time, while there are many items to be discussed and points to be discussed. While they are making steady progress with the pilot experiment with the help of everyone, they believe that they have reached roughly the halfway point in relation to the initially envisioned themes and work content. However, based on the discussions and considerations so far, they believe that there are more items to be considered and points to be discussed than initially anticipated. While there is no plan to expand the scope of the study at this stage, they would like to consider how to proceed in the future, taking into account the situation both domestically and internationally. Regarding the third and fourth points, they understand that these are important points and would like to proceed with discussions while being fully aware of them.
• (Second Association of Regional Banks): In Japan, where various private digital payment methods are provided, they believe that it is very important for each related organization to grasp the significance of introducing CBDC and the image of use cases in their regions as their own matter in order to proceed with national discussions in preparation for the introduction of CBDC. Therefore, they would appreciate it if they could share a tangible image of use cases in this forum as widely as possible. Also, while they understand that the experimental system has been constructed primarily by the Bank of Japan for the purpose of experimentation, they believe that it is necessary to clarify the role of intermediary organizations, which private financial institutions would likely play if CBDC is issued, through further discussions in the future. Finally, they would like the public burden of CBDC introduction costs to be considered from the viewpoint of the public nature of CBDC as legal tender and the perspective of encouraging private financial institutions to proactively engage in the introduction of CBDC.
• (Secretariat): Regarding the specific use cases of CBDC, they would like to share them with everyone as much as possible, taking into account the current state of study, as they have also received various ideas through working groups. They believe that it is necessary to consider not only the short-term perspective of looking several years ahead, but also the medium- to long-term perspective of how payment systems and methods will evolve and what kind of use cases can be considered in such cases. In any case, they would like to continue exchanging opinions while being aware of various timeframes.
• (Ministry of Finance): Regarding the division of roles between the government and the Bank of Japan in considering CBDC, so far, the Bank of Japan has mainly focused on technical aspects, while the government has focused on institutional and legal aspects, and they would like to continue to cooperate and clarify basic concepts and options regarding major issues, etc., while watching developments in other countries.
• (Secretariat): Regarding the second question, since this council aims to have discussions on the content and progress status of the pilot experiment and how to proceed in the future so that it contributes to the smooth implementation of the pilot experiment, they believe it is appropriate to deal with themes related to retail CBDC at this forum. On the other hand, regarding wholesale CBDC, as mentioned in the Payment System Report introduced earlier, they intend to provide necessary information dissemination appropriately and promptly.

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