Legal Perspectives of Money and CBDC in Japan

Legal Perspectives of Money and CBDC in Japan I. Forwards 1. CBDC is under development: e-CNY, (soon?) Digital Euro (2026?), Bitcoin (2026?), Digital Yen, Digital dollar, etc. 2. However, Financial Literacy is still low (only 4.7% know CBDC). Retail CBDC has more challenges (such as Excessive Government Control) than wholesale CBDC. Though US, UK, NZ did public consultations, Japan has no plan. Why are people left behind? Why Are The People Left Behind? 1. Hypo 1: Too technical and too uncertain to account for the people: however, the Bank of Japan (BOJ) has legal accountability to the public for its currency policy and its decision processes (The BOJ Act, Art. 3(2)). 2. Hypo 2: Geopolitical and Sensitive nature: See next two slides; however, the same is true of the UK, US, NZ. 3. Hypo 3: Adverse effects of existing academic classifications: CBDC and digital payment issues are classified as highly technical events in the field of financial theory of economics, in which constitutional law ideas such as democracy, as well as international and domestic law analyses are easily discarded under the name of "central bank independence", but it does not mean immunity. On the other hand, financial law tends to focus only on the detailed interpretation of existing laws. Geopolitical Estimates - As the global CBDC progresses, it is expected to bring about changes in the current U.S. monetary hegemony, leading to a bipolarization with China, or a repolarization with Europe and China. This can affect current financial sanctions. - US vs China: A Hungarian central banker's paper predicts that CBDC will replace existing international payments built around correspondent banks and SWIFT in the future, and predicts a future in which the global financial system will be divided between East and West amid the US-China conflict. E. Boros, M Holváth, "Central Bank Digital Currency: The Next Money Revolution? Central Bank Digital Currencies in the Dimension of Geopolitics," Public Finance Quarterly, April, 2022, pp. 506-521. - US vs China vs EU: An English Researcher, Michael Lloyd, at the UK Global Policy Institute, predicts that in addition to the U.S.-China confrontation, the EU is also moving against the U.S., creating a tripolar situation. M. Lloyd, "The Future of Money: Central Bank Digital Currencies," ATL Econ J (2022) 50: pp.85-98. Japanese Sensitive Views 1. The BOJ began to consider adopting retail CBDC, because of the influence of e-CNY, which itself is NOT an effective "super-sovereign" currency for cross-border settlements. However, if it combined with wholesale CIPS (Cross-Border Interbank Payment System), it could greatly promote its internationalization of Chinese Renminbi. Some experts believe that e-CNY, which is highly state-regulated, will not be used as much as Alipay. There is also privacy concern of Chinese government access to Japanese data. [politically sensitiveness in the global CBDC competition against China] 2. The ruling party (LDP) politician Hideki MURAI (from the MOF) noted in July 2021 that mutual compatibility with CBDC issued in Europe and the US will be important, and that we must ensure that China does not take over the technology standard. Democratic Process is Needed - The Bank of Japan (BOJ) has accountability to the general public, not only to the experts. - Prof. W. Bateman, ANU, questions the existing views from constitutional law (next slide). - Financial Education has not touched on Digital Currencies. Social Enlightenment is not enough, and sometimes misleading (ex. Japanese Bankers Association HP explains distributed ledger technology (DLT) as the same as blockchain: In fact, a type of DLT). - [Conclusion] The concept of "central bank independence" should be reshaped to constitutionally positioned central bank as an independent authority and democratically controlled through transparency and accountability. Will Bateman, The Monetary State, OUP  "Monetary authority is the fourth great power of the constitutional state, alongside legislative, executive and judicial authority."... "The fourth great power of state has come to occupy a uniquely illiberal status [such as central bank independence] in the structure of constitutional government."  "The [economic studies'] functional definition's chief weakness is its omission of state power in determining the functions of money. “...”No equilibrium has been reached between those polarities of economic and constitutional power."... "Economic effectiveness only provides limited insight into the conformity of monetary institutions with basic constitutional values."  "The judiciary decides that the decisions of the monetary authorities are too complex and economically-momentous to be reviewed by a judicial body; the investors' law suits are dismissed as non-justiciable (Raichle v Federal Reserve Bank of New York, 34 F.2d 910 (2d Cir 1929))". Jurisprudence and Economics 1. Money originated from: (1) commodity; (2) law; (3) debt, by Economics, while (1) law (F.A. Mann); (2) social acceptance (prevailing view); (3) financial institutions (A. Vicuna) from Jurisprudence (Zimmerman, 2013). 2. Monetary Sovereignty, a nominal concept (see later) based on traditional sovereign states, does not fit the current international finance: Proposed revisions by Zimmerman (2013: hybrid of hard and soft law), MURAU Klooster (2022: monetary governance including offshore and shadow banking). Still, we need some dispute resolution norms for the future. 3. I propose G20 consensus on processing disputes on harming Monetary Sovereignty caused by issuing other sovereign currency nominated CBDC, a new type of digital dollarization. Bakong, Cambodian CBDC, issues USD without US consent. If China can issue USD or JPY nominated e-CNY without consents, and change the specifications as larger and more global, there will be a problem.