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Officials from the Bank of Japan have stated that digital yen will not be utilised to produce negative interest rates

The Executive Director of the Bank of Japan indicated that the much-anticipated digital yen will not be used to achieve negative interest rates.

The Bank of Japan (BoJ) has stated that the digital yen, which is part of the Central Bank Digital Currency (CBDC), will not be utilised to help achieve negative interest rates. Shinichi Uchida, the BoJ’s Executive Director, made the news in his most recent public speech.

“While adopting such a capacity to achieve a negative interest rate is occasionally considered in academia, the Bank will not introduce CBDC on this basis.”

Negative interest rates were first implemented in Japan in 2016 as a means of combating decades of deflation by boosting borrowing and expenditure. Negative interest rates are only employed by central banks as a last resort to boost an economy by promoting borrowing and expenditure by paying interest to borrowers rather than lenders during a recession.

Former head of the Bank of Japan’s financial settlement department Hiromi Yamaoka, who warned earlier this year that CBDCs might potentially ruin the Japanese economy, echoed this sentiment. While Yamaoka supported the idea of digitising payment systems, he opposed the use of a CBDC to do so.

Similarly, senior Wall Street Journal columnist James Mackintosh has claimed that if interest rates fell below zero, the difference between a CBDC and cash would be underlined. People would rather keep their actual cash in order to “earn zero” than risk losing money on a digital dollar issued by the central bank. Uchida added in his address that if the establishment of a digital yen proceeds, Japanese citizens can expect the CBDC to be introduced with a number of distinct features.

For the length of the pilot, the bank is considering setting a transaction limit on each individual or company, as well as whether or not to make the digital yen an interest-bearing asset. In October 2020, the Bank of Japan released a three-phase trial framework for its central bank digital currency (CBDC). The first two phases of the experiment will focus on proving the concept, while the third step will witness the debut of a prototype currency.

The first phase began in April 2021 and ended this year on March 22. On March 24, the Bank of Japan announced the start of the second round of trials, noting that it will begin evaluating the more technical aspects of the digital yen’s issue. However, at Japan’s FIN/SUM fintech event earlier this month, BoJ governor Haruhiko Kuroda stated that the central bank had no intentions to implement a CBDC anytime soon.

Before making any big decisions or announcements, Kuroda stated that the Bank of Japan intends to thoroughly study the expected functions of central bank money in the lives of Japanese citizens.

“From the standpoint of ensuring the stability and effectiveness of the entire payment and settlement systems, we believe it is critical to plan thoroughly to respond to changes in circumstances in an appropriate manner.”

CBDCs are becoming increasingly popular as governments around the world consider the potential benefits of digital assets. The Reserve Bank of South Africa completed its technical proof-of-concept for the CBDC on Tuesday, April 12. Brazil’s central bank indicated that a CBDC pilot programme would begin in the second half of this year.


Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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