The Bank of Japan (BoJ) has said that its central bank digital currency (CBDC), the digital yen, will not be used to help achieve negative interest rates.
BoJ CEO Shinichi Uchida made the announcement in his last public address.
“Although the idea of using such functionality as a means of achieving a negative interest rate is sometimes discussed in academia, the Bank will not introduce CBDC for this reason.”
Japan initially adopted negative interest rates in 2016 in an attempt to combat decades of deflation by encouraging borrowing and spending. Negative interest rates are only used as a last resort by central banks during a recession to stimulate an economy by encouraging borrowing and spending, paying interest to borrowers rather than lenders.
The former head of the financial settlement department of the Bank of Japan, Hiromi Yamaoka echoed this view, warning earlier this year that CBDCs could destroy the Japanese economy.. Although Yamaoka agreed with the idea of digitizing payment methods, he did not support the idea of using a CBDC for it.
The Wall Street Journal columnist James Mackintosh has similarly argued that the difference between a CBDC and cash would become apparent if interest rates fell below zero. People would be more inclined to hold on to physical cash to “gain zero” than to lose money in a digital dollar issued by the central bank.
In his speech, Uchida stated that if the creation of the digital yen goes ahead, Japanese citizens can expect the CBDC to launch with a number of unique features..
The bank is studying the possibility of imposing a limit on the amount of transactions of each person or entity during the duration of the pilot project and is also contemplating the possibility of converting the digital yen into an interest-bearing asset..
The Bank of Japan first shared its three-phase testing scheme for its central bank digital currency in October 2020.. The first two phases of the trial focus on testing the proofs-of-concept, while the third phase would launch a pilot coin.
The first phase began in April 2021 and ended on March 22 this year. The Bank of Japan started the second phase of tests on March 24stating that he would start testing the more technical aspects around the issuance of the digital yen.
Nevertheless, BoJ Governor Haruhiko Kuroda announced at Japan’s FIN/SUM fintech summit earlier this month that he has no plans to introduce a CBDC any time soon.
Kuroda explained that The Bank of Japan plans to carefully consider the intended roles of central bank money in the lives of Japanese citizens before making any major decisions or announcements..
“We consider it important to prepare thoroughly to respond to changing circumstances appropriately, from the point of view of ensuring the stability and efficiency of the overall payment and settlement systems.”
The popularity of CBDCs continues to grow as governments around the world look to the potential benefits of digital assets.. On Tuesday, Brazil’s central bank confirmed that a CBDC pilot program will be launched in the second half of this year, while the South African Reserve Bank finalized its technical proof of concept for its CBDC.
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