Bank of Tokyo Mitsubishi to create its own digital currency

Bank of Tokyo Mitsubishi to create its own digital currency

Bank of Tokyo Mitsubishi UFJ has confirmed reports that it is working on plans to create its own digital currency, with a limited release of the virtual coin penciled in for early 2017.

Responding to a query from Reuters following a report in Japan's Asahi Shimbun, the bank states: "Regarding the speculation (in) media reports, these reports are not based on any announcement by MUFG, and the details have not been decided. However we can only say that it's true that MUFG is conducting demonstration experiments on the 'Coin' within the company utilising a block chain technology."

The MUFG coin system will work much like prepaid electronic money, such as "Suica," already widely used in Japan, and will be pegged to the Japanese Yen. It is envisaged that users will be able to download the virtual currency onto their smartphones, and use it for P2P funds transfers and for online shopping. The money will be converted at a rate of one MUFG coin to 1 yen.

The bank is also reportedly developing ATMs that will enable customers to withdraw MUFG coins onto their smartphones or convert the virtual currency into cash, with release of the new machines scheduled for spring 2018.

Comments: (5)

A Finextra member
A Finextra member 15 June, 2016, 11:56Be the first to give this comment the thumbs up 0 likes

Given that the MUFG coin will equate to one yen, why would I choose this over a mobile wallet with yen in it? Maybe this has educational value from developing an active implementation of the blockchain but it doesn't appear to have any economic benefit. However, in case I am wrong, and it does take off, there may be adverse implications for money supply, money market liquidity and bank lending ratios at least.

A Finextra member
A Finextra member 15 June, 2016, 12:25Be the first to give this comment the thumbs up 0 likes

I made exactly the same reflexion!

A Finextra member
A Finextra member 15 June, 2016, 14:21Be the first to give this comment the thumbs up 0 likes That is my first reflection too - what's the point here? Using blockchain -or any chain- technology to move fiat currency (Yen), ok, but that is what most banks are looking into. And giving this new currency a physical form factor and dispense that through ATM's when most countries are (in Europe at least) in the process of trying to get rid of fiat currency in physical forms like notes and coins as much as possible ?
Hitesh Thakkar
Hitesh Thakkar - SME - Fintech startups (APAC and Africa) - India 15 June, 2016, 15:39Be the first to give this comment the thumbs up 0 likes

It seems Japan wants build crypto currency and circulate in tandem  with fiat currency with limited risk exposure ( P2P lending) may be that is reason conversion ratio is 1. For the same reason they want to allow customer to charge their mobile wallet from ATM or withdraw Yen till the time it gets matured in use.

However, I agree with Declan and Rik on implications on money supply.

A Finextra member
A Finextra member 15 June, 2016, 16:101 like 1 like

Japanese law forbids entities that are not licensed money transfer agents from intermediating payments.

There are thus no mobile wallets / smartcards / e-wallets in Japan loaded with actual yens.

Popular electronic money-like services provided by Japanese mobile phone operators and railway companies — e.g.


might give users the illusion that they contain yens but they are, in fact, stored value cards, essentially containing "points" that are redeemable for goods and services — e.g. train rides.

They are thus, conceptually, similar e.g. to a prepaid Starbucks card loaded with arbitrary units of value that one can redeem for, say, coffee.

Obivously, unlike your typical Japanese mobile phone or railway company, Japanese banks are fully licensed money transfer agents, and offer the full portfolio of bank accounts and intra- and inter-bank payment services one expects in a modern, industrialized country.

Why would then a financial institution like Bank of Tokyo Mitsubishi UFJ — BTMU — go to the trouble of introducing a virtual currency (the "BTMU coin") if they are already licensed to provide JPY transfer — and therefore payment — services ?

I see several advantages:

  1. Although Japan's domestic interbank payments network (Zengin-Net) is quite fast and efficient — it smoothly processes about 2.3 billion interbank and ATM payments per year, after all — it's also quite expensive.  The end-user pricing differs from bank to bank, but it's not unusual for a Japanese bank to charge their customers JPY 200 to 300 even for a simple, automated domestic interbank payment that you'd enter via an ATM or via the bank's web banking interface.  A blockchain-based payment clearing and settlement system could eliminate the ZenginNet-related costs, making small-value payments much less expensive to make.
  2. E-wallets like Osaifu-keitai and Suica are essentially C2B payment systems, and not suitable for C2C a.k.a. P2P payments.  A virtual currency like the BTMU coin would presumably have a much more P2P-friendly architecture.
  3. E-wallets like Osaifu-keitai and Suica don't integrate very well with the Internet — e.g. web shops.  This is similar to the fact that e.g. Transport of London's Oyster card isn't exactly a very suitable or efficient method to pay e.g. for your Amazon or eBay purchases.
  4. The fact that BTMU issues the BTMUCs and operates, in effect, as a currency board backed by actual JPYs — a bit like how, say, the Hong Kong Monetary Authority ensures that HK financial institutions hold enough USDs to back the USD-pegged HKDs in circulation — eliminates the exchange rate volatility and uncertainty as a store of value that affect virtual currencies like Bitcoin.
  5. Exchanging BTMU coins — BTMUC — instead of actual JPYs enables Japanese — as well as non-Japanese — entities that aren't licensed payment transfer agents to be full participants in the BTMUC payment network.  Innovative Internet-age businesses might come up with services involving BTMUCs — e.g. management of on-line wallets, escrow, settlement of payments etc. — that could be risky if they could be construed by a picky regulator as involving the transfer of actual JPYs.  This would allow the ecosystem using BTMUCs to safely and legally grow far beyond the usual banks / licensed money transfer agents, and enable, say, any Internet-connected business to easily transact BTMUCs.

As to the effects on the money supply, I guess they'd depend on the architecture of the BTMUC's distributed ledger / blockchain, which is unknown at this point in time.

With existing distributed ledger systems like the popular Bitcoin, it is, in effect, impossible for person A to spend a Bitcoin that belongs to person B.

Due to the way Bitcoin is designed, the only way for person A to spend a bitcoin that belongs to person B is for person B to first send that bitcoin to person A, which is, in effect, the same as for person B to explicitly, and totally relinquish its ownership claim on that particular bitcoin.

The usual method of bank-intermediated credit, and the accompanying creation of money is impossible with Bitcoin — in fact, it was an explicitly stated goal of Bitcoin's designer to make money creation by banks impossible.

Scenarios like these are thus impossible with Bitcoin:

My expectation is that a currency board system backed by BTMU's JPY holdings implies that the creation of new BTMUCs by entities other than BTMU will be impossible, therefore preventing an uncontrolled increase of the BTMUC money supply by participants other than BTMU.

What about the effect on the JPY money supply of the introduction of BTMUC ?
That effect is, IMHO, likely going to be marginal, as, conceptually, the BTMUC is no different from the stored value systems like the Osaifu-Keitai and Suica that are already in widespread use in Japan.

The actual economic effects of monetary aggregates — M0 base money etc. — depend on the velocity of money.  There might thus be interesting academic studies to be done on the relative differences of velocity of "money" when it's denominated in JPY instead of stored in, say, Suica e-wallets or web-friendly BTMUCs virtual accounts, but I suspect the velocity effect would be quite marginal at the macro level — GDP etc.