From a situation in which there was a certain amount of panic among the leading global banks when faced with the prospect of becoming obsolete, today we find that the leading US and European banks have invested heavily in developing their own blockchain platforms, which are mainly in testing phases, although some have already implemented their solutions.
The response of the leading Japanese banks has not been as swift but leading Japanese banks such as the Mitsubishi UFJ Financial Group (MUFG) and the Mizuho Financial Group have shown strong awareness of the implications of blockchain technology and cryptocurrencies for their business.
The entry of Alibaba into the mobile payment business in Japan has also played an important part in the response of Japanese banks. They are now faced with the prospect of dealing with a highly successful Chinese player that has laid down the marker globally for the payments industry. In order to retain control of their turf, a consortium of the leading Japanese banks is in discussions with the country’s central bank and the financial market regulator to introduce a local cryptocurrency called the ‘J coin’ in the market, preferably ahead of the 2020 Tokyo Olympics, which might be a great opportunity to promote such an initiative.
The cryptocurrency would be convertible on par with the yen, and would allow users to make payments using their smartphones. Hence, it could be an important and technologically advanced response to the entry of Alibaba in the local market. While the MUFG is not currently part of the J coin consortium, it has been working independently on its own offering called the MUFG coin. It has also remained open to the idea that it could join the J coin consortium at a later date. MUFG coin is now in its testing phase and is being used by hundreds of its senior staff.
From a regulatory point of view, Japan has been a more traditional and conservative market compared to its western counterparts in Europe and North America, and the use of cryptocurrencies by banks for mobile payments would be a big step for the country. However, there country has several cryptocurrency exchanges and had recently recognized Bitcoins as legal tender though the revised payment services law, passed in April 2017, which also set out operational standards for exchanges. Recognizing the importance of strong regulation in this industry, the financial market regulator Financial Services Agency (FSA) has recently stated that it will increase the regulatory surveillance of cryptocurrency exchanges from October 2017.
From an Asian perspective, regulators in leading markets such as Japan and China are exhibiting good awareness of the potential and pitfalls of blockchain technology and cryptocurrencies. The need of the hour is to establish a strong regulatory framework that would ensure that there is no negative impact on their respective economies of the rapidly growing cryptocurrency markets, while allowing the various innovating firms and retail market participants to benefit from their investments in the technology.