Japan has noticeably stepped up its bid to become an international financial center over the past year. The immediate catalyst has been Hong Kong's political troubles. Japan would like to attract international financial institutions and talent from Hong Kong, offering a more predictable and stable business environment. Yet Japan's biggest financial opportunity lies not in replacing Hong Kong, but rather in developing itself as Asia's premier cryptocurrency hub. Japan has a big head start over its competitors in this area. With perseverance, it can emerge ahead of both Singapore and Hong Kong.

Japan may be a cashless payments laggard, but it still plans to launch a central bank digital currency (CBDC). Tokyo's newfound interest in a digital yen derives at least in part from a desire to stay competitive with China. Beijing's launch of DCEP pilots this year showed that it was leaps and bounds ahead of other countries in the CBDC department. At the same time, a CBDC offers Japan a chance to accelerate the overall digitization of its financial system. Cash still accounts for about 73% of all transactions in Japan.

Cambodia has become the first country in Southeast Asia to launch a blockchain-based payment platform backed by its central bank. The Cambodian government is calling the platform, known as Project Bakong, a "retail central bank digital currency." Co-developed with the Japanese fintech firm Soramitsu, Bakong enables transactions in both Cambodian riel (KHR) and US dollars and works with Cambodia's existing payment systems. The Bakong app allows users with a Cambodian phone number and bank account to set up a digital wallet in either Riel or US dollars, transfer between accounts and make payments with a phone number or QR code.

U.S. regulators have always been ambivalent about blockchain technology and cryptocurrency. That translates to a lack of regulatory clarity for firms operating in the space. In the U.S., crypto could be a currency, property, commodity or security, depending which regulatory authority you ask. But for now, it remains in limbo. Frustrated with this situation, San Francisco-based Ripple Labs is considering packing its bags and relocating to Japan or Singapore, countries which have taken a more proactive approach to regulating cryptocurrency than the United States.

Facebook's virtual currency initiative is getting a much needed boost with the addition of Singapore's sovereign wealth fund Temasek to the Libra Association. Temasek is the first member based in Asia and brings the city-state's fintech prowess to the table. Over the past decade, Singapore has emerged as Asia's preeminent fintech hub. Its government has approached fintech as an enabler of a wider variety of financial services rather than a mere disruptor of the status quo. If Libra is going to succeed, it will need to move in that direction.

South Korea is eager to introduce more digital applications into its financial system, but unsure how far it wants to go with digital currency. That goes for not just crypto, but central bank digital currency as well. For now, payments is one fintech segment in which South Korean tech giants are poised to launch new applications.

Here comes China's blockchain bandwagon, ready or not. The novel coronavirus may have slowed the Chinese economy down, but now that life is slowly returning to normal, blockchain hype is back. China currently has about 35,000 blockchain companies, according to information portal Tianyacha. In Guangdong Province alone, there are 20,000 of them. Even amidst the coronavirus pandemic, more than 2,000 new blockchain companies were formed between January and March, according to Forkast News.

Unsurprisingly, most of these firms are not focused on distributed ledger technology. Research by Forkast shows that just over 500 of them have a state-issued blockchain service filing number. Without one of those, a company is not a certified blockchain provider in China. China's 01 Think Tank found that about 1,000 of 30,000 blockchain firms in China are engaged in business that uses distributed ledger technology.

Japan stealthily has become among the world's most pro-crypto countries. Amidst the boom and gloom that have defined the crypto space, Tokyo has avoided irrational exuberance or draconian restrictions on the use and trade of virtual currency. Instead, it has quietly incorporated digital currency into its existing financial system, linking it to the wider push to boost cashless payments. In Asia, no nation has been more consistent in its crypto approach. The next logical step would be to create a central bank digital currency. Japanese officials, however, have yet to commit to a CBDC. Pressure is mounting though, especially as China pushes ahead with its sovereign digital currency.

North Korea's growing nuclear program has long been a point of contention between the U.S. and China. Beijing prefers to handle its mercurial neighbor with kid gloves while Washington favors a tougher approach, namely economic sanctions. To evade sanctions in the digital age, Pyongyang has upped its hacking game. Both banks and cryptocurrency exchanges are victims. Digital currency offers North Korea a way to raise funds and do business outside the US dollar led global financial system. North Korea stole more than US$2 billion from both traditional financial institutions and crypto exchanges - including South Korea's Bitthumb - the United Nations said in an Aug. 2019 report.

The Trump administration has not shown much enthusiasm for a sovereign digital currency so far. With China's advances in the area, however, Washington's stance could be set to change. In early February, a member of the United States Federal Reserve Bank board of governors said the Fed is researching and experimenting with distributed ledger technologies and their virtual-currency applications. Among the applications being explored is a central bank digital currency (CBDC).

Lael Brainard, who chairs multiple Fed committees, made the remarks at a speech during an event on payments held at Stanford University. Brainard noted that 80% of central banks globally are researching CBDCs. However, she stopped well short of endorsing a full-throated campaign to create a digital dollar, devoting considerable attention to the challenges and risks posed by digital fiat currencies.