BoJ Official Says Digital Yen Won’t Be Used To Achieve Negative Interest Rate
The Bank of Japan (BoJ) has said that its central bank digital currency (CBDC), the digital yen, will not be used to help drive negative interest rates.
BoJ Executive Director Shinichi Uchida made the announcement in his latest public address.
“While the idea of using such a feature as a means of obtaining a negative interest rate is sometimes discussed in academia, the Bank will not introduce the CBDC on this ground.”
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 used only as a last resort by central banks during a recession to stimulate an economy by encouraging borrowing and spending, with interest paid to borrowers rather than lenders.
The former head of the BoJ’s financial regulations department, Hiromi Yamaoka, echoed that sentiment, warning earlier this year that CBDCs could potentially destroy Japan’s economy. While Yamaoka agreed with the idea of digitizing payment methods, he did not support the idea of using a CBDC for this.
Wall Street Journal senior columnist James Mackintosh similarly argued that the difference between a CBDC and cash would be highlighted if interest rates fell below zero. People would be more inclined to hold on to physical money to “earn zero” rather than losing money on a digital dollar issued by the central bank.
In his speech, Uchida said that if the creation of the digital yen progresses, Japanese citizens can expect the CBDC to be released with a series of unique features.
The bank is considering placing a limit on the amount of each individual or entity’s transaction for the duration of the pilot, and is also considering whether or not to make the digital yen an interest-bearing asset.
The BoJ first share its three-phase trial plan for its central bank digital currency (CBDC) in October 2020. The first two phases of the trial are focused on testing proofs of concept while the third phase would see the launch of a pilot currency.
The first phase has begun in April 2021 and completed on March 22 of this year. The BoJ began its second phase of testing on March 24, saying it would start testing the more technical aspects around issuing the digital yen.
However, BoJ Governor Haruhiko Kuroda announcement at the FIN/SUM fintech summit in Japan earlier this month, he has no plans to introduce a CBDC anytime soon.
Related: Former BOJ official warns against using digital yen in financial sector
Kuroda explained that the BoJ plans to carefully consider the expected roles of central bank money in the lives of Japanese citizens before making any major decisions or announcements.
“We consider it important to prepare carefully to respond to changing circumstances in an appropriate manner, from the point of view of ensuring the stability and efficiency of all 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, April 12, Brazil’s central bank confirmed that a CBDC pilot program would be launched by the second half of this year, while the Reserve Bank of South Africa finalized its technical proof of concept for its CBDC.