The Bank of Japan has become the latest government financial institution to recognize the risks of state-issued cryptocurrencies. According to its Deputy Governor Masayoshi Amamiya, a national digital coin may jeopardize the traditional financial system established in developed countries. The Japanese central bank has no plans to issue its own crypto, he said.
Centralized Coin to Hit Financial Stability
Digital currencies issued by central banks may have a large impact on the current financial system, the Deputy Governor of Japan’s central bank Masayoshi Amamiya said during a fintech conference. He told attendees, including representatives of the International Monetary Fund (IMF) and the Japanese Financial Services Authority (FSA), that the Bank of Japan had no immediate plans to mint its own crypto.
Amamiya noted that central banks were established to overcome “the turmoil caused by multiple payment instruments.” That’s why they were assigned the exclusive role to issue “central bank money,” he explained. 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. According to the Bank of Japan’s executive, this structure “reflects the wisdom of human beings in history to achieve both efficiency and stability.”
Masayoshi Amamiya shared his concerns that the issuance of central bank digital currencies will grant households and businesses direct access to central bank accounts. “This may have a large impact on the two-tiered currency system and private banks’ financial intermediation”, BOJ’s representative warned. Currently, the central bank allows direct access to its accounts only to a limited number of entities such as private banks, he remarked.
At the same time, Amamiya believes that central banks should always pay attention to ongoing innovation and follow technological advances in order to provide societies with the best financial infrastructure. BOJ fully acknowledges the importance of understanding innovative technologies not only for maintaining stability, but also for seeking their application in the future, the Deputy Governor said.
State Cryptos Rested on the Back Burner
Masayoshi Amamiya’s comments come at a time when a growing number of central banks and financial authorities are turning their backs on centralized, state-sponsored cryptocurrencies. Proposals to issue such digital coins, with or without blockchain, have been made in several countries over the past few months. They have been seen as alternatives to decentralized cryptocurrencies, like bitcoin, that would allow governments to use the technology without losing control over the financial system.
This month a high-ranking representative of the Swiss National Bank expressed concerns similar to those shared by BOJ’s Deputy Governor. Private-sector digital currencies are better and less risky than any version that might be offered by a central bank, according to Andrea Maechler, a member of the SNB’s governing board. “Digital central bank money is not necessary to ensure efficient cashless payments,” she said.
In Maechler’s words, a government-backed cryptocurrency would make it easier for people to withdraw their money, if they felt a bank was in difficulties. “It would deliver scarcely any advantages, but would give rise to incalculable risks,” she warned. Just like her Japanese colleague, Andrea Maechler saw a threat to the “tried and tested” two-tier system.
Initially enthusiastic about the idea of a state-backed cryptocurrency, the Central Bank of Russia has gradually changed its position, too. Plans to introduce a so-called “cryptoruble” have been postponed. Centrobank revealed intentions to study the possibility of issuing a “virtual national currency” last summer. Later, however, its Deputy President Olga Skorobogatova said “the introduction of a national digital currency seems unjustified”. Russia may instead seek consultations with its partners from EAEU and BRICS on creating a common digital coin for international transactions.
The Russian Finance Ministry, which has led efforts to regulate cryptocurrencies, has also indicated a negative stance on the “cryptoruble”. In a letter to President Putin, Minister Anton Siluanov said that a centralized digital coin isn’t possible due to certain features of cryptocurrencies, including the decentralized nature of distributed ledgers. Russia is now heading in a different direction, with 27 digital economy draft laws to be reviewed by the State Duma this year. Two of them aim to legalize initial coin offerings, mining, and possibly regulate digital currency payments.