Central Bank-Issued Cryptocurrency Could Impact The Financial System, Says Bank of Japan Officialbr>
Bank of Japan Deputy Governor Masayoshi Amamiya said that a central bank-issued cryptocurrency could significantly impact the current structure of the banking system.
In his closing remarks at the IMF-JFSA-BOJ Conference on FinTech, Amamiya said that the issuance of central bank digital currencies for general use could be analogous to allowing households and firms to directly have accounts in the central bank. He said this may have a large impact on the two-tiered currency system and private banks’ financial intermediation.
Under the two-tiered currency system, the central bank specializes in supplying banknotes and central bank deposits, while private banks perform the function of credit creation and provide deposit currencies as broader money. Through such activities, private banks provide payment services to the general public and allocate financial resources to the economy as loans and credits.
“Innovation raises many fundamental questions and challenges related to the currency system, the design of central bank infrastructure and the utilization of information attached to economic activities,” Amamiya said. “I sincerely hope our understanding of these issues will be further deepened in the future.”
While the Bank of Japan has no plan to issue its own digital currency now, Amamiya said that they fully acknowledges the importance of deeply understanding innovative technologies, not only for maintaining financial stability, but also for seeking the possibility of applying them to central bank infrastructure in the future.
“Central banks should always be attentive to on-going innovation, and continue making efforts to provide the best infrastructure to society in accordance with the development of technologies,” Amamiya said.
In December 2016, the Bank of Japan and the European Central Bank (ECB) launched their joint research project called “Stella,” which studies the possible use of distributed ledger technology (DLT) for financial market infrastructures. Last month, the central banks published research results on how DLT can create new securities settlement mechanisms, including “cross-chain atomic swaps” between unconnected ledgers.