Masayoshi Amamiya, Bank of Japan’s (BOJ) deputy governor, has reportedly criticized the concept of central bank-issued digital currencies (CBDC). Amamiya, whose comments came during a meeting held in Nagoya, central Japan, noted that CBDCs would not help in improving the existing financial system.
According to the New York Times, this is not the first time that Amamiya has expressed skepticism about a bank-issued cryptocurrency. The University of Tokyo economics graduate also said that the BOJ would not be issuing a CBDC.
Notably, some financial analysts in Japan think that a CBDC may give banking institutions more control over the nation’s business and economic activities if interest rates drop to zero. Its proponents point out that a CBDC would allow the nation’s central banks to stimulate the local economy as it would let them increase interest rates on deposits made by their clients.
Fiat Money Must Be Removed, If CBDCs Are Expected To Work Effectively
Charging more interest usually leads to customers spending more money - which is usually a good thing for the economy. However, Amamiya thinks increasing interest rates for CBDCs would only be beneficial if banks remove the circulation of fiat currencies from the existing financial system.
Amamiya explained that if fiat money remains a part of the financial system, then people would simply convert CBDCs into cash, so that they don’t have to pay interest. The deputy governor noted:
In order for central banks to overcome the zero lower bound on nominal interest rates, they would need to get rid of cash from society.
He added that it would not be practical to remove fiat money from Japan’s banking system as cash payments are one of the most widely used payment methods in the country. Therefore, eliminating fiat currency is currently “not an option for [the] central bank”, Amamiya said.
Transitioning To Crypto-Based Economy Is "Quite A High Hurdle"
The BOJ deputy governor further noted that the financial institution is not considering developing or conducting extensive research on CBDCs for payment and settlement. Amamiya thinks that transitioning from the current state-backed fiat money system to a crypto-based economy is "quite a high hurdle.”
He also said that currently cryptos are thought of as speculative investments and their high volatility makes them unsuitable as a medium of exchange.
In April, Amamiya had said that CBDCs could adversely affect the country’s existing financial system. However, the governor had revealed at the time that the country was exploring new financial technology including crypto assets.
At present, Japan’s tax authorities are working on developing a taxation system for digital assets, in order to help the country’s citizens report their capital gains from cryptocurrencies. The current tax filing system has been criticized for being too complicated