Over the past few months, there has been a lot of concern over the fact that central banks may begin issuing their own digital currencies. On paper, such a trend makes perfect sense, even though the reality may turn out to be very different. The Bank of Japan is putting its native digital currency plans on the back-burner, which is a positive development for the cryptocurrency industry as a whole.
No Bank of Japan-Issued Digital Currency
Central banks play a critical role in the world of finance. These institutions control the ebb and flow of the monetary supply in their respective countries. At the same time, a lot of financial institutions would love to get rid of physical money, mainly because it costs a lot of money to print, maintain, and secure the existing supply.
As such, creating a digital counterpart to existing fiat currency is an option worth exploring. The Bank of Japan acknowledged the potential of a bank-issued digital currency, although it seems they will not pursue this option after all. They are too concerned about the risks associated with a state-issued cryptocurrency which could end up destabilizing the Japanese economy in short order.
Since no one knows for sure how bank-issued digital currencies will impact the financial system, there is no reason to take unnecessary risks. For this reason, the Bank of Japan will not mint its own cryptocurrency for the foreseeable future. The money issued by this central bank will remain in today’s physical form, which may be the best course of action for all parties.
Bank of Japan Deputy Governor Masayoshi Amamiya commented:
In the two-tiered modern financial system, private banks provide payment services to the general public and allocate financial resources to the economy through loans and credits. This structure reflects the wisdom of human beings in history to achieve both efficiency and stability.
Issuing a central bank digital currency would give households direct access to central bank accounts. That is not the right way to handle these things. As of right now, central banks only grant direct access to private banks and other approved entities. Giving the public access to this information could have all kinds of unforeseen consequences.
The Bank of Japan is not the first central bank to go back on its plan to create a native digital currency. A lot of institutions were initially excited about such ventures, but it has become apparent that there are a lot of risks and drawbacks to such things. This may also explain why governments have been showing some leniency toward Bitcoin and other cryptocurrencies as of late. How this situation will play out remains anybody’s guess at this point.