Ex-BOJ official warns against digital yen

Hiromi Yamaoka outlines threat negative rates combined with a CBDC could have on population

The former head of the Bank of Japan’s (BOJ) financial settlement department has warned against using a digital yen as part of the nation’s monetary policy. 

Hiromi Yamaoka warning

Hiromi Yamaoka, who reportedly led the central bank’s research into central bank digital currencies (CBDCs), has outlined his concern that the public will be more exposed to the effects of inflation and the diminishing value of fiat currency once a digital yen becomes a go-to tool for mass payment. 

He stated: “Some say that negative interest rates could work more effectively with a digital currency, but I don’t think so.”

Since leaving the BOJ, Yamaoka has become a board director of Future Corporation, a private sector digital currency forum of 74 companies and organisations, including Japan’s largest banks.

This group plans to issue a private digital currency for use between members in the near future, according to Reuters.

Yamaoka said: “It’s obvious that the current payment system can’t stay as it is now. It’s in everyone’s interest to make it better and cheaper.”

Beyond the precise context of Japan, the issue that Yamaoka highlighted has been consistently identified as a possible negative consequence of CBDCs. Some advocates of CBDCs have stated that by introducing negative interest rates or expiration dates to them, central banks and governments may be able to stimulate growth by encouraging economic activity.

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A rush for CBDCs?

Research into and development of state-backed digital currencies has accelerated rapidly in recent years, as governments reacted to the explosive growth in popularity enjoyed by cryptocurrencies and other digital assets.

Although heralded by some as a future replacement for the likes of Bitcoin, CBDCs have been criticised in some quarters for being almost the complete opposite of cryptocurrencies. Opponents have stressed that such policies amount to deliberate currency devaluation and damage the ability of citizens to save and budget.

CBDCs are centralised rather than decentralised and have an infinite supply determined by the whim of the nation’s central bank, unlike most cryptos. They can also afford the state unprecedented levels of insight into the spending habits of citizens.

China, which is currently the furthest along the path to introduce a CBDC of any G20, is launching additional final stage digital yuan trials in conjunction with the Beijing 2022 Olympics. 

Japan’s Finance Minister, Shun’ichi Suzuki, recently admitted that he is aware China is ahead in the rush to develop a CBDC 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 yen later this year but, as yet, has not fully committed itself to introducing one.

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