According to the former chief of payments and settlements at the Bank of Japan (BOJ), Facebook’s Libra project made many central banks to consider the idea of digital currency issuance. Apart from China, which is set to launch its digital Yuan later this year, many other central banks are looking into the idea of central bank digital currencies.
A January 22 report cited remarks by Hiromi Yamaoka. Hiromi is believed to have led the BOJ’s research and forays into digital currencies. He did that as part of his high profile role at the bank, and he continues to communicate closely with international central bank policymakers.
Currently, Hiromi is a board member at an IT consultancy firm, Future Corp.
The Private-Public Discussion
A January 21 report revealed that the central banks of the European Union, Canada, Sweden, the United Kingdom, Switzerland, and Japan had confirmed their creation of a joint group with the Bank for International Settlements (BIS). The new group will study central bank digital currencies (CBDC).
The increased private-public competition catalyzes this initiative in determining the future of money. Yamaoka commented:
“The latest decision is not just about sharing information. It’s also an effort to keep something like Libra in check […] Major central banks need to appeal that they, too, are making efforts to make settlement more efficient with better use of digital technology.”
While various projects like Libra increase the pressure on financial institutions to lower transaction costs, they also increase fundamental questions about nation-states’ control over currency issuance.
But Yamaoka said that he is worried that the central banks could be limiting the private sector’s innovation activities. He is also convinced that the use of CBDCs will come with many advantages of enhancing the effectiveness of central bank measures:
“In the world of central bankers, the idea of using CBDCs to enhance the effectiveness of monetary policy seems to have subsided somewhat. There are increasing doubts about the effect of negative interest rates as a policy tool. If so, do you want to issue CBDCs for the sake of deploying a policy with questionable effects?”
The most recent instance is the pressure exerted on central banks to survive the race aiming for greater convenience and diversity in the global settlements and payments. That diversity, instead of complementing institutions’ policy goals, is thought by the regulators who rule the current global system (the Federal Reserve) as something that must be scrutinized keenly and not embraced:
“If you want to make monetary policy effective, you need to ensure people keep using the currency you issue.”
BOJ and Blockchain
Project Stella at the European Central Bank (ECB) and the Bank of Japan have come together to study the probable use of blockchain technology in primary role to solve institutional banking challenges. In 2017, when the project closed, both institutions concluded that the technology had not yet matured sufficiently.
Sometime last year, the governor of the Bank of Japan said that the Libra project could have a ‘huge impact’ on society. He insisted that international cooperation is necessary to ensure that Facebook‘s stablecoin is regulated effectively.