The Bank of Japan (BoJ) has said that its central bank digital currency (CBDC), the digital yen, will not be used to help drive negative interest rates.
BoJ Executive Director Shinichi Uchida made the announcement in his last public address.
“While the idea of using such a feature as a means of obtaining a negative interest rate is sometimes discussed in academia, the Bank will not introduce the CBDC on this ground.”
Japan initially adopted negative interest rates in 2016 in an attempt to combat decades of deflation by encouraging borrowing and spending. Negative interest rates are used only as a last resort by central banks during a recession to stimulate an economy by encouraging borrowing and spending, with interest paid to borrowers rather than lenders.
The former head of the BoJ’s financial regulations department, Hiromi Yamaoka, echoed that sentiment, warning earlier this year that CBDCs could potentially destroy Japan’s economy. While Yamaoka agreed with the idea of digitizing payment methods, he did not support the idea of using a CBDC for this.
Wall Street Journal senior columnist James Mackintosh also argued that the difference between a CBDC and cash would be highlighted if interest rates fell below zero. People would be more inclined to hold on to physical money to “earn zero” rather than losing money on a digital dollar issued by the central bank.
In his speech, Uchida said that if the creation of the digital yen progresses, Japanese citizens can expect the CBDC to be released with a series of unique features.
The bank is considering placing a limit on the amount of each individual or entity’s transaction for the duration of the pilot, and is also considering whether or not to make the digital yen an interest-bearing asset.