The Bank of Japan (BoJ) has stated that the digital yen, its Central Bank Digital Currency (CBDC), will not be used to help to achieve negative interest rates.
Shinichi Uchida, Executive Director of the Bank of Japan, made the announcement in his most recent public speech.
“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.”
Japan first used negative interest rates in 2016 to combat decades of deflation by encouraging borrowing and spending. Negative interest rates are only used by central banks as a last resort during a recession to stimulate the economy by encouraging borrowing and spending, with the interest paid to borrowers rather than lenders.
Former head of the Bank of Japan’s financial settlement department Hiromi Yamaoka, who warned earlier this year that CBDCs could potentially destroy the Japanese economy, echoed this sentiment. While Yamaoka supported the idea of digitising payment methods, he was not in favour of opting CBDC for it.
Uchida stated in his speech that if the creation of digital yen proceeds, Japanese citizens can expect the CBDC to be released with a number of unique features.
The bank is considering imposing a limit on each individual or entity’s transaction amount for the duration of the pilot, and study is also going on whether or not to make the digital yen an interest-bearing asset.
In October 2020, the Bank of Japan (BoJ) revealed its three-phase trial outline for its central bank digital currency (CBDC). The first two phases of the trial will focus on proof-of-concept testing, while the third phase will see the launch of a pilot currency.
However, the governor of the Bank of Japan, Haruhiko Kuroda, stated earlier this month at Japan’s FIN/SUM fintech summit that the BoJ has no plans to introduce a CBDC anytime soon.
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