The Bank of Japan will not establish CBDC in order to reach negative interest rates

While the concept has been debated in academic circles, a top central bank official has ruled out the notion of the Bank of Japan (BOJ) implementing the digital yen as a method of achieving negative interest rates.

Indeed, the BOJ is planning trials on creating a central bank digital currency (CBDC), with the goal of studying possibilities such as limiting the amount of transactions and ownership for each institution, according to Reuters.

Mr. Uchida was speaking during a meeting of the BOJ’s Liaison and Coordination Committee on CBDC, during which participants debated the digital yen’s future, including whether it would be interest-bearing and therefore “become a near alternative for bank deposits.”

However, the bank is not contemplating introducing it in order to achieve a negative interest rate. As he put it:

“While the possibility of implementing such a capacity to produce a negative interest rate has been explored in academics on occasion, the Bank will not establish CBDC on this basis. It is improbable that the general people would endorse such a reason. Additionally, such a payment feature would be operationally impossible as long as currency existed.”

Meanwhile, Japan’s central bank began a second phase trial in April in preparation for a potential CBDC launch. As Finbold previously reported, the Bank of Japan began conducting feasibility studies on CBDC in early April 2021.

Additionally, the Japanese yen has fallen to its lowest level against the US dollar since 2002, down 40% from its 2011 peak, as financial expert and investor Charlie Bilello tweeted on April 13.

The XJY index is now trading at 79.52, compared to roughly 132.5 in 2011, when it set a post-World War II record high versus the dollar.

Meanwhile, on April 11, former Vice-Minister of Finance for International Affairs Eisuke Sakakibara said that the BOJ would interfere if the Yen goes below 130 per dollar.

Attitudes about CBDC in different countries

Finbold previously reported in mid-January on the Swiss National Bank’s CBDC trial, in which the bank successfully employed digital currency to settle transactions with five different commercial banks.

Simultaneously, UK MPs rejected a plan to launch a CBDC, dubbed ‘Britcoin,’ citing a lack of a compelling argument and severe threats to the region’s economy and user privacy.

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