The executive director of the Japanese central bank, Shinichi Uchida of BoJ has categorically stated that the CBDC of Japan, its digital yen wouldn’t be utilized to attain a negative rate of interest. In his recent speech, he said that using the functionality to accomplish a rate of negative interest has been the subject of academic discussion, but will not be a reality in Japan.
The negative rate of interest was first adopted in 2016. It was done to combat negative inflation rates or deflation, through the encouragement to citizens and industries to spend and borrow. Negative rates of interest are seen as a final resort used by a country’s central bank to stimulate its economy during recessions.
In such a scenario, borrowers are encouraged to spend and borrow through negative rates of interest; instead of borrowers paying interest, they are instead paid by lenders to spend more.
Other Senior BoJ Officials Have Warned Against The Danger Of Misutilizing CBDCs
Hiromi Yamaoka, who recently headed the financial settlement dept. of BoJ, spoke in a similar vein when he warned earlier in the year that CBDCs had the potential to destroy the nation’s economy. Yamaoka was open to the notion of going digital with payment methods, but he was not supportive of the notion of using CBDCs for it.
James Macintosh of WSJ had echoed the officials of BoJ when he said that the variance between cash and CBDCs would be exposed when interest rates went south of the zero mark. In such a scenario, people would prefer to hoard paper cash than lose out on digital money issued by the nation’s central bank.
Uchida said that if Japan’s digital currency did go through, the people of Japan could expect some unique features when the CBDCs were released.
BoJ is considering the imposition of a transaction amount limit. This would apply to both entities and individuals during the period of the pilot. BoJ is also contemplating making its digital currency an interest-bearing asset.
CBDCs continue to gain popularity as governments realize the benefits associated with digital assets.