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Bank of Japan will not launch CBDC to achieve negative interest rates, representative says

Ana Zirojevic

Although the idea has been discussed in academic circles, a senior central bank official has rebuffed the possibility of the Bank of Japan (BOJ) introducing the digital yen as a means to achieve negative interest rates.

Indeed, the BOJ is preparing experiments on issuing a central bank digital currency (CBDC), aimed at exploring options such as setting a limit on the number of transactions and holdings for each entity, the central bank’s Executive Director Shinichi Uchida said on April 13, as Reuters reported.

Mr. Uchida was speaking at the meeting of the BOJ’s Liaison and Coordination Committee on CBDC, where the participants discussed the plans for the digital yen, whether it would be interest-bearing and, as such, “end up being a close substitute for bank deposits.”

However, launching it for the purpose of reaching a negative interest rate is not something the bank is considering. As he explained:

“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. It is unlikely that such a motivation would be supported by the general public. Furthermore, such a remuneration functionality would be operationally unrealistic while cash still exists.”

Meanwhile, Japan’s central bank has moved to a second phase experiment from April to prepare for the possibility of a CBDC launch in the future. As Finbold reported, the Bank of Japan had begun CBDC feasibility tests in early April 2021.

Yen at its lowest in 20 years

It is also worth mentioning that the Japanese yen has hit its lowest level versus the US dollar since 2002, which is a drop of 40% from its high in 2011, as the financial analyst and investor Charlie Bilello tweeted on April 13.

Source: Charlie Bilello

Specifically, the XJY index is currently standing at 79.52, whereas in 2011 it reached a post-World War II record high against the dollar of around 132.5. 

Meanwhile, on April 11, Eisuke Sakakibara, former vice-minister of finance for international affairs, said that BOJ will intervene if the Yen falls beyond 130 per dollar.  

CBDC attitudes in other countries

Elsewhere, Finbold had reported in mid-January on a CBDC experiment of the Swiss National Bank, in which it successfully used digital currency to settle transactions with five different commercial banks

At the same time, the United Kingdom lawmakers have rejected the proposal to roll out a CBDC, the so-called ‘Britcoin’, citing its lack of a convincing case and posing significant risks to the region’s economy and user privacy.

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