Masayoshi Amamiya, the assistant governor of the Bank of Japan or BOJ has criticized the concept of central bank-issued digital currencies or CBDC.
CBDC may give banking institutions more control over business and economic activities
Amamiya, whose comments came at the time of the meeting held in Nagoya, central Japan, noted that CBDCs would not help in the improvement of the existing financial system.
As the New York Times reported, this is not the first time that Amamiya expressed skepticism and criticism about a bank-issued cryptocurrency. The University of Tokyo economics graduate also stated that the BOJ is not going to be issuing a CBDC.
Notably, some of the financial analysts in Japan actually think that a CBDC may give banking institutions more control over the business and economic activities of the nation if interest rates drop to zero. Its proponents also point out that a CBDC is going to permit the central banks of the government to stimulate the local economy as it is going to let them increase interest rates on deposits which are made by their clients.
Fiat money would have to be removed if CBDC work effectively
Charging more interest often leads to customers spending more money that is usually a good thing for the economy. However, Amamiya believes that increasing interest rates for CBDCs is only going to be beneficial if banks remove the circulation of fiat currencies from the existing financial system.
Amamiya also explained that if fiat money remains a part of the financial system, people are just going to convert CBDCs into cash, so that they will not have to pay interest. He noted that for central banks to overcome the zero lower bound on nominal interest rates, they would have to get rid of cash from society.
The deputy governor also added that it is not going to be practical to remove fiat money from the banking system of Japan as cash payments are one of the most widely used payment methods in the country. Therefore, eliminating fiat currency is now not an option for the central bank.
CBDC could affect the existing financial system of the country
The deputy governor of the Bank of Japan also noted that the financial institution is not considering developing or conducting extensive research on CBDC for payment, as well as settlement. He thinks that transitioning from the current state-backed fiat money system to a crypto-based economy is quite a high hurdle.
Also, he stated that now cryptocurrencies are thought of as a speculative investment, and their high volatility actually makes them unsuitable as a medium of exchange.
In April of this year, the governor said that CBDCs could adversely affect the existing financial system of the country. However, he also revealed that the state was exploring some new financial technology which includes crypto assets.
Now, the tax authorities of Japan are working on developing a taxation system for digital assets, so that to help the citizens of the country to report their capital gains from cryptos. The tax filling system from currently was criticized for being too complicated.