Cryptocurrencies Unlikely To Enhance Monetary Policies, Says Bank Of Japan Governor

News | October 22, 2018 By:

Masayoshi Amamiya, deputy governor of the Bank of Japan, the country’s central bank, said that the BOJ has no plan to issue cryptocurrencies that can be widely used by the public for settlement and payment purposes.

In a speech at a meeting of academics in Nagoya, central Japan, Amamiya reiterated his negative stance towards central bank-issued cryptocurrencies (CBDC), claiming that such digital currencies are unlikely to enhance the monetary policies of central banks.

Some experts argue that that central bank digital currencies can serve as a practically costless medium of exchange, a secure store of value, and a stable unit of account. The interest-bearing design of CBDC, and the obsolescence of paper currency, would also contribute to greater macroeconomic stability, because interest rate adjustments would have the advantage of no longer being constrained by an effective lower bound in response to severe adverse shocks. The lower bound has been a key reason why many central banks currently aim at positive inflation rates of 2% or more, whereas CBDC will essentially eliminate the need to maintain this inflation buffer.

The BOJ deputy governor said that charging interest on digital currencies would only work if central banks eliminate cash from society. Otherwise, the public will simply convert cryptocurrencies into cash to avoid paying interest.

“In order for central banks to overcome the zero lower bound on nominal interest rates, they would need to get rid of cash from society,” Amamiya said. “Getting rid of cash now is not an option for us as a central bank, as cash is still widely used in Japan.”

Amamiya added that there was “quite a high hurdle” for cryptocurrencies to overcome sovereign currencies as the main means for payment and settlement. He said this is backed up by the fact that cryptocurrencies are rarely used for day-to-day payment and settlement, and are mostly a target for speculative investment.

In April of this year, Amamiya said that issuance of CBDCs for general use could be analogous to allowing households and firms to directly have accounts in the central bank, which could have a negative impact on the existing financial system. However, at the time, the deputy governor 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.