Digital Local Currency* -Significance From the Perspective of Local Governments and Regional Financial Institutions-

One of the reasons why the issuance of Local Currency is being considered is the depopulation of the region and its fragile economy. Local Currency is considered as one of method to resolve these social issues. Japan’s population peaked at about 128million in 2010 and is estimated to decline to about 93 million by 2060^*1, and this trend is more pronounced in the rural areas. As seen in Figure 1, the ratio of local tax revenue to the revenue of depopulated municipalities is 13.9%, which is significantly lower than the national figure of 34.0%. This indicates that depopulated areas are insufficient in independent financial resources, and their fiscal structure is fragile and dependent on the central government^*2. Not only is there a decrease in manpower and the fragility and dependence of the economy, but there are also social concerns such as the weakening of social bonds and even the disappearance of the community itself.

Reference: Created by ABeam Consulting based on the 2020 census by the Ministry of Internal Affairs and Communications.

While social issues are becoming more prominent in the context of depopulation, Local Currency is being considered to help solve these issues. In particular, the recent focus on Local Currency is largely due to the fostering of an environment related to initiate and apply digital economy for bringing more efficient and secure social environment. Within this context, various initiatives have been started to consider including the promotion of cashless payment, the spread of Local Currency platforms, and the growth of blockchain technology.

Local Currency have two aspects: economic and social. Why, is the issuance of a Local Currency being considered? The significance of a Local Currency can also be considered from aspects described per below.

First, the economic aspect is to prevent the outflow of local resources from the region in aim to stimulate the economic activities as much as possible in the region. For example, even if the government subsidizes the region and tourists consume within the region, if the funds are diverted to consumption outside the region such as through e-commerce sites, the region’s economy will not circulate. Similarly, data leakage is another example. If local consumption is done by credit card or QR payment, the data cannot be utilized by the local stakeholders themselves due to the industrial credit card scheme, even though it is the data of the region. In this regard, a Local Currency could prevent economic and data leakage. In addition, new positive uses can be considered such as an approach to promote tourism consumption.

Second, the social aspects include contributions to stimulate (a) regional participation and communication revitalization, as well as (b) contributions to the formation of a recycling-oriented society that utilizes the region’s natural resources. Examples of (a) regional participation and communication revitalization, include cases where Local Currency is earned by performing volunteer work or participating in community events. In addition, some Local Currencies seek to further acquire social credibility by making the history of receipt of Local Currency and account status visible on the app and sharing it with all participants. An example of (b) contributions to the formation of a recycling-oriented society that utilizes the region’s natural resources, would be the “tree stations” that have been introduced in mountainous areas which forests residues and thinned wood are used as resources for wood boilers and other equipment. This aim is to create a form of circulation for both nature and the economy by applying the regional gift certificate called Mori Ken (“forest ticket” in Japanese) serving as lubricating oil^*3. Forest owners and other registered shippers can receive Mori Ken by bringing thinned lumber and other materials to the program management office. Then thinned wood is traded as fuel for boilers at local hospitals and hot water pools. Registered shippers, on the other hand, can use the Mori Ken they received at local gas station, restaurants, and other locations. Merchants who receive the Mori Ken can either cash them in through the program management office or reuse them at other merchants.

Figure 2 visualizes these two aspects. The outer circle represents the economic aspect, and the inner circle represents the social aspect, both of which are in the form of the economy and society rotating and circulating from place to place.

Local Currency prevent the outflow of resources outside the region, stimulate economic and social circulation within the region, and orchestrate the inflow of funds from outside the region. Through these measures, regional self-sustainability would be promoted. On the other hand, to issue Local Currency and maintain their circulation, establish as sustainable business is required. In the next part 2 of this Insight Series, various considerations including service design to establish a Local Currency as a business, will be discussed.