The beginning of the year was particularly eventful

for the Japanese crypto ecosystem, which is generally considered to be a major part of the industry. First of all, Japan’s Central Bank (BoJ) issued a study on the role of central bank digital currencies (CBDCs) in the current monetary system, a topic that was widely discussed by the country’s officials last year. Secondly, major domestic trading company and investment bank, Marubeni Corporation and Daiwa Securities Group, reported blockchain-related advancements in their businesses. Finally, local banking giant Mizuho Financial Group announced the launch of its custom stablecoin. Time to observe this news closer and see what has been happening with crypto in Japan.

It’s still unclear whether Japan will issue a CBDC

Japan’s authorities have been notably hesitant about the idea of introducing a CBDC, which might seem surprising at first, given that cryptocurrencies can be used as a legally accepted means of payment in the country (although they are not considered “legal tender”). CBDCs — just like Bitcoin (BTC) and altcoins — are also virtual currencies. The main difference is that they are issued and controlled by a federal regulator. Hence, CBDCs are not decentralized, unlike many digital assets. Basically, they represent fiat money, albeit in digital form. Each CBDC unit acts as a secure digital equivalent to a paper bill and can be powered with distributed ledger technology (DLT). Consequently, if central bank decides to issue a CBDC, it becomes not only its regulator, but an account holder as well, as people would have to store and access their digital money via this bank. That places CBDC-issuing central banks on a par with private banks.

CBDCs could be seen as central banks’ response to the growing popularity of cryptocurrencies, which bypass regulators’ purview due to their decentralized design. Federally-issued currencies, in turn, aim to take some of the main features from crypto — namely the convenience and security — and combine them with the proven attributes of the conventional banking system, in which money circulation is regulated and reserve-backed. At this point, the BoJ has publicly criticized the concept of CBDCs twice. First, in April 2018, its deputy governor, Masayoshi Amamiya, declared that such currencies can have a negative impact on the existing financial system. Specifically, he expressed his concern about taking on the role of private


“The issuance of central bank digital currencies for general use could be analogous to allowing households and firms to directly have accounts in the central bank. This may have a large impact on the aforementioned two-tiered currency system and private banks' financial intermediation.”

Then, on Oct. 20, Masayoshi Amamiya expressed his doubts regarding the effectiveness of CBDCs, adding that his agency won’t be issuing its digital currency in the near future. Specifically, Amamiya responded to a theory suggesting that CBDCs can help governments overcome the "zero lower bound" — a situation in which interest rates fall to zero and the central bank loses the capacity to stimulate the economy. According to this approach, a CBDC would enable central banks to charge more interest on deposits from individuals and firms, and hence motivate them to spend money and vitalize the financial system.

The deputy governor questioned that theory, claiming that charging interest on central bank-issued currencies would only work if central banks fully eliminate physical money from the local economy. Otherwise, the public would still continue converting digital currencies into cash in order to avoid paying interest. The elimination of fiat money in Japan is “not an option for us as a central bank,” since cash is a popular method of payment in the country, Amamiya added. Indeed, Japanese society is still mostly cash-based, as about 65 percent of transactions are reportedly done in paper money (which is more than double that of other developed economies).

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