There was a time when cryptocurrencies were ridiculed as just a ‘speculative financial asset’ by the banking elite. Now, a decade in, they are considered crucial for shaping economic policies in several places.
Masayoshi Amamiya, Deputy Governor of the Bank of Japan [BoJ], stated that digital currencies cannot be used to boost the effect of Japan’s negative interest rates, reported Reuters on July 5.
Don’t be jumping off your seats just yet though. Amamiya is referring to the prospects, or lack thereof, of a digital asset which is equivalent to the yen, rather than a full-fledged decentralized currency that is still a pipe dream for the cryptocurrency community.
He specifically stated that if the BoJ opts to supply sovereign currency in digital form with the pretext of negative interest rates, cash would be benefited. Households and corporates will begin hoarding cash in order to avoid charges for holding digital currencies.
“To overcome the nominal zero lower bound, central banks would need to eliminate cash. Eliminating cash would make settlement infrastructure inconvenient for the public, so no central bank would do this.”
Adding digital currencies in the mix is merely a ‘nudge’ to the larger macro-economic policy of negative-interest rates, rather than taking a page from the principles of the cryptocurrency world.
Japan began employing the use of ‘negative interest rates’ back in 2016, prompting citizens to deposit their funds in bank accounts, thereby earning interest. The BoJ introduced this to boost the economy, as the saved cash could be put to better use and be loaned out to households and corporates.
The European Central Bank heralded this economic policy in 2014, with other non-Eurozone members like Denmark, Switzerland, and Sweden also introducing negative interest rates.
Amidst the fervor of a central bank official mulling the prospect of employing digital currencies in the implementation of a key economic policy, the very idea of this could not have been envisaged a few years ago. If the BoJ does change its opinion of this probability, it could go down the route of Facebook and provide a complete infrastructure for this digital currency.
Like the Libra, the BoJ could roll out its digital currency via its own blockchain, a sovereign one. Instead of veering towards commercial bank accounts, the central bank can have its own Calibra-esque wallet. Despite these prospects still being backed by a government and being a mere reflection of the yen, it could be a telling tale for the larger growth of the virtual currency market, with the same having a bleeding effect on the price of Bitcoin.
Given how the BTC price rallied when the Libra announcement hit the market, imagine how it would shoot-up if the Bank of Japan launches its own digital currency.