One of Japan’s biggest banks is launching a digital “coin” to replace cash—without using crypto
As part of Japan’s drive to embrace electronic payments, Mizuho and about 60 other banks have launched a new digital wallet called J-Coin Pay. But contrary to what you may have read about it, it doesn’t use crypto.
Mizuho’s new service uses QR codes to process smartphone payments, resembling Alipay and WeChat Pay, the dominant platforms in China. Japan has one of the most cash-intensive economies in the world, and its government is pushing for an electronic overhaul in time for the 2020 Olympics in Tokyo. Digital payments account for about 20% of transactions in Japan—compared with more than 60% in China—and the government aims to double that percentage by 2025.
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According to a Mizuho spokesperson, J-Coin doesn’t use cryptocurrency or blockchain in any form. That conflicts with numerous reports going back as far as 2017 suggesting that the bank was researching or planning a digital currency pegged to the Japanese yen (paywall).
Perhaps some confusion is understandable: “J-Coin” certainly sounds like a newfangled digital token. Mizuho’s statement about it describes it as a “digital currency platform.” A spokesperson reportedly told CNBC in 2017 that it would be pegged to the yen. The bank claims it had always planned to build a QR-code payment system rather than a standalone digital currency.
It’s unclear what benefits a crypto-yen would have provided anyway; consumers have been transacting with electronic money since before the internet was invented. Amid all the hype about JPMorgan’s JPM Coin (paywall) and Facebook’s reported digital currency, it’s worth remembering that “crypto coin” is another way of saying “database entry.” Payment companies from Swift to TransferWise have said managing such entries on a blockchain doesn’t necessarily make payments faster or cheaper.
With or (mostly) without blockchain, digital transactions are catching on around the world. Japan, though, has been slow to make the digital leap. The country has an aging population, whereas digital money tends to be more popular among younger residents. The country also has a low crime rate, which makes people less worried about carrying large sums of cash around. Years of low and even negative interest rates may have inspired the Japanese to hoard cash to avoid having their savings eroded. Habits around money are slow to change.
For better or worse, greater use of electronic money would give the Bank of Japan more scope to stimulate the economy during the next slowdown. A digitized transaction system could save merchants and businesses on cash-handling expenses, while potentially making them more productive. There’s also a risk that Japanese companies lose out on their own turf to Chinese rivals like Ant Financial’s Alipay, which has more than 700 million active users in its domestic market. In the meantime, there are still unresolved questions about privacy when it comes to digital payments, and Japan’s elderly probably wouldn’t be well served by a cashless society.
It makes sense for governments to encourage electronic payments, up to a point. But they don’t need to embrace crypto to do it.