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East Asian economic superpower has adopted negative interest rate in the country but may not be possible with CBDC, said Bank of Japan
Central Bank Digital Currency (CBDC) is considered by nations a safe passage to cater to the services and facilities that digital currencies provide, like fast transactions at way cheaper fees and bypassing the risks that cryptocurrencies possess, including volatility and uncontrolled behavior. Economies worldwide are making efforts to develop and launch their own CBDC sooner or later. Japan is among such countries trying to cope with the ongoing CBDC adoption wave all around.
While the development of CBDC in Japan continues, the Bank of Japan has clarified the impact of the digital yen. The BoJ has said that its digital yen will not be used to achieve negative interest rates. The announcement was made in the most recent public speech by the Executive Director of the Bank, Shinichi Uchida, who stated that the use of such an asset as a medium to achieve a negative interest rate is discussed in conversations. Still, the Bank will not consider this ground to introduce its CBDC.
Initially, Japan had adopted negative interest rates way back in 2016 to fight a long time of deflation where the way has encouraged borrowing and spending. It’s a common understanding that negative interest rates pushed by central banks are used only as a last resort during a recession kind of situation in order to stimulate the economy. This encourages borrowing and spending where interest is paid to borrowers instead of lenders.
Similar sentiments were shared by the former head of the financial settlement department at the Bank of Japan, Hiromi Yamaoka, who said earlier this year in a warning tone that CBDCs possess risks and could potentially destroy the economy of Japan. Although Yamaoka considers it a good idea to digitize the payment methods, he does not support the notion to use CBDC for this means.
Senior Columnist at Wall Street Journal, James Mackintosh, has put some similar arguments where he said that the difference between cash and a CBDC would be clear if interest rates would fall below zero. If this happened, the people would be inclined more towards holding on to physical cash to earn zero interest instead of losing their money on some digital currency issued by the Central Bank.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
