The use of a central bank digital currency has been ruled out by a Bank of Japan (BoJ) official. The reason is that to do so may require the country to abandon cash. Bank of Japan believes a Central Bank digital currency would require disposal of fiat currency.
Masayoshi Amamiya, deputy governor of the Japanese central bank, disagreed central bank’s statement. They could make negative interest rate policies more effective by issuing their own digital currencies (CBDCs). This information is as per a report by Reuters a week ago.
If the BoJ issues a digital yen and sets a negative interest rate, Amamiya claims holders would drop the digital coin and instead hold cash. This is because individuals and businesses would effectively be charged for holding the CBDC:
“To overcome the nominal zero lower bounds, central banks would need to eliminate cash. Eliminating cash would make settlement infrastructure inconvenient for the public, so no central bank would do this.”
Bank of Japan believes a Central Bank digital currency would require disposal of fiat currency. Amamiya had said back in April 2018, that the BoJ had no plans to issue a CBDC directly for consumers. This is because it could undermine the existing two-tiered system and affect financial stability.
He additionally stated that argued the central bank that launching a digital currency would change the system without assurance of being financially stable. Central banks currently only give access to limited entities such as private banks, which face consumers directly in a second tier. With digital currency, consumers would have access to Central Banks.