Bank of Japan Exec Director Refuses CBDC Launch for Negative Rates

Key Insights:

• Bank of Japan’s Executive Director Shinichi Uchida said the CBDCs would not be used to achieve negative rates.
• Back in February, another BoJ official stated CBDCs could damage the economy.
• Other banks and companies in the country are also developing their own form of stablecoins.

As Japan continues its pursuit of developing its very own Central Bank Digital Currency (CBDC), the very central bank that is going to issue it, is noting apprehensions from its executives.

Japan Says No to CBDC, but Not Completely

According to Reuters, the Executive Director of the Bank of Japan, Shinichi Uchida, stated that the central bank will not introduce a digital currency of the Japanese Yen if it is intended to be used as a means to achieve negative rates. 

Recently, Japan began its experiments for introducing a CBDC potentially within the next four years, and for the same, there have been to and fro from economists in the country.

Regardless, the central bank continues to test and experiment with new features.

Currently, the experiments are in their second phase, and the BoJ plans to explore the possibilities of establishing a transaction and HODLing limit on the CBDC.

Furthermore, the bank is also looking to examine whether or not they should be making the CBDC an interest-bearing asset. According to Uchida, doing so could lead to the CBDC becoming a substitute for bank deposits though. Adding to the concern of negative rates, he said,

“While the idea of using such a functionality as a means to achieve a negative interest rate is sometimes discussed in academia, the Bank will not introduce CBDC on this ground.”

Issues With the CBDC

While Uchida had issues with the negative rates, the Former Head of Bank of Japan’s financial settlement department, Hiromi Yamaoka, stated that CBDCs could end up destroying the economy.

Although Hiromi agreed with digitalizing payment methods, he did not support the idea of using a CBDC for it. He also shared similar concerns on the negative interest rates issue stating,

“Some say that negative interest rates could work more effectively with a digital currency, but I don’t think so.”

On the other hand, companies and banks are coming up with their own offerings of coins in the meanwhile. As reported by FXEmpire, Japan-based trading company Mitsui & Co. plans on issuing a gold pegged cryptocurrency in the country.

However, even though it may act as a stablecoin, it will not be pegged 1:1 with the Japanese Yen but to the value of 1 gram of Gold. 

While the “stablecoin” does offer a suitable means of investment, it does not compare to what an actual stablecoin or a CBDC can achieve. Thus as stated by the Bank of Japan, the country might have to wait until 2026 to get its very own digital currency.