Ex-Official Warns BOJ Against Using Digital Yen to Juice Policy
Ex-Official Warns BOJ Against Using Digital Yen to Juice Policy
(Bloomberg) -- The Bank of Japan shouldn’t view the issuing of a digital currency as a monetary policy option as doing so could severely damage the economy, according to a former BOJ official who led research into digital money.
“Some say that negative interest rates could work more effectively with a digital currency, but I don’t think so,” said Hiromi Yamaoka, the former head of the BOJ’s financial settlement department.
Yamaoka said that while it’s clear Japan’s payment systems need to change with the help of digital money, he was totally against the idea of the central bank using a digital yen to gain extra policy leverage.
The application of interest rates will be a key part of discussions during the BOJ’s ongoing research into central bank digital currencies. Those studies are taking place as China takes a further step toward a full-scale launch of its CBDC by introducing it to a wider range of users at the Beijing Winter Olympics this week.
Some BOJ watchers say a digital currency could open the door to more effective stimulus tools for a bank that has used almost everything available in its toolkit.
Read More: Digital Yen Is BOJ’s Last Weapon Against Deflation: Ex-Official
If use of a digital yen became widespread in the economy, it would be harder for households and businesses to escape the influence of negative rates, they say.
Yamaoka, who is currently spearheading a private sector digital currency project, said the benefit of applying negative interest to a CBDC isn’t clearcut. He doubts households will spend more money even if they know a dollar today will become 99 cents tomorrow.
Instead, the move could trigger fears over the stability of the currency’s value, a key central bank mandate, with disastrous consequences for the economy in a worst case scenario, he said.
The progress made by China and central banks in other countries shows that the BOJ has no time to lose in getting up to speed on digital currencies, Yamaoka said.
China is rolling out its digital yuan to athletes and spectators ahead of the Beijing games, the first major test of the virtual currency’s appeal among foreigners.
Japan’s Finance Minister Shunichi Suzuki said he is aware that China is ahead of the race and will be closely watching developments over the digital yuan.
The BOJ is expected to start a second phase of experiments on the issuance of a digital currency this year. The bank has no plan to issue its own digital money for now, but says it must be ready in case the need for a CBDC suddenly arises.
Governor Haruhiko Kuroda said Friday that he personally thinks a decision on the issuance of a central bank digital currency in Japan will be made around 2026 and won’t be decided by the BOJ alone. Kuroda’s term at the helm of the bank ends in spring 2023.
Yamaoka chairs a private sector digital currency forum of 74 companies and entities, including the nation’s biggest banks. The forum plans to issue a private digital currency for use among them in the fiscal year starting in April.
“It’s obvious that the current payment system can’t stay as it is now,” Yamaoka said. “It’s in everyone’s interest to make it better and cheaper.”
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