Former BoJ official sees risks in launching the digital yen

CBDC could threaten financial stability and have catastrophic consequences for the economy. Hiromi Yamaoka, the former head of the Bank of Japan’s digital yen research, said this, The Japan Times reports.

The greatest concern for Yamaoka is negative interest rates, which could impose a burden on households if CBDC becomes a popular payment instrument.

Some say that negative interest rates could work more effectively with digital currency, but I don’t think so, he commented.

Yamaoka doubted that such a step in monetary policy implementation would push households to increase spending in a bid to offset the decline in the purchasing power of savings. A weaker yen could be an unintended side effect, he added.

He is currently the former head of the BoJ’s Financial Settlement Department, leading a private-sector forum on digital currencies. The group includes 74 companies and organisations, including the country’s largest banks. The consortium plans to issue a digital currency for settlements among participants in the new financial year starting in April.

In April 2021 the Bank of Japan launched the first of three phases of CBDC testing, which will run until March 2022. In the second phase, the regulator will focus on the technical aspects of issuing the digital yen.

In July, Hideki Murai, a representative of the governing Liberal Democratic Party, said that the state will develop a more detailed plan for CBDC by the end of 2022.

Earlier, BoJ Governor Haruhiko Kuroda said the regulator would decide on launching the digital yen by 2026.

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