Facebook’s cryptocurrency pushing central banks to research digital currencies

A former Bank of Japan executive expressed that Facebook’s Libra cryptocurrency posed a challenge encouraging major central banks to study the potential for issuing their own digital currencies. It is known that the central banks of Britain, the eurozone, Japan, Canada, Sweden, and Switzerland announced working together to look for a way to issue digital currencies, amid a growing debate over the future of the monetary system. Among the major central banks so far, China has led the drive to create its own digital Yuan.

Hiromi Yamaoka, former head of the BOJ’s division overseeing payment and settlement systems, said this move was a sign of how Libra has caused a global competition among central banks to make their currencies more appealing. He said the latest decision (by the six central banks) is not only about sharing experiences, but it is also an effort to keep Libra under control.

Hiromi Yamaoka is now a board member at IT consulting firm Future Corp. Image via Twitter

The BOJ is doing a joint research project with the European Central Bank but there is no plan to issue CBDCs in the near future.

Something like Libra would make transactions costs much cheaper. So major central banks need to show that they are also making efforts to address more efficiently with better use of digital technology.

Global central banks have quickly pushed the pace at which they are looking at issuing their own digital currencies, also known as central bank digital currencies (CBDCs). The launch of Facebook’s Libra cryptocurrency has put questions over whether nation-states will continue to control money in the decades ahead.

Yamaoka said the establishment of the joint research group could fasten moves by the central banks to apply blockchain technology for large-scale, wholesale settlement. But the obstacle for central banks issuing digital currencies for small, retail settlement is still high because it would stifle private-sector competition.

He also protested the view of some academics that central banks could low negative interest rates more easily by issuing digital currencies. He said in the world of central banks, the idea of using CBDCs to increase the effectiveness of monetary policy seems to have subsided somewhat. There are emerging doubts about the effect of negative interest rates as a policy tool. Do we want to issue CBDCs for the aim of deploying a policy with questionable effects?

Another factor driving central banks into studying CBDCs is the need to boost their currencies’ convenience so they can fit in an age of diversifying settlement means. That is why the Federal Reserve, which issues the world’s most-used currency, has no interest in CBDCs,

He concluded that if we want to make monetary policy effective, we need to ensure people keep using the currency we issue.

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