Bank of Japan Weighs High and Lows of CBDC Adoption

Financial experts at the Bank of Japan (BoJ) today, released a paper highlighting the pros and cons of the central bank backed digital currency (CBDC) in the current monetary system.

According to a report released by the bank today, the discussion of CBDCs in various countries is now a significant topic, making it essential for different jurisdictions to examine the impacts of replacing traditional fiat currencies with CBDC. 

Possible Methods Of CBDC Distribution 

On the one hand, the BoJ report pointed out that the CBDC could be made accessible to the general public just like banknotes, where it could be used for the daily payment of goods and services.  

Another possibility would be implementing it as a store of value where it can be held by a limited number of entities such as commercial banks, and others.

However, the researchers explicitly stated that there are no plans at the moment by the BoJ to issue CBDCs that will replace banknotes despite the supposed benefits of doing so.

The Highs of CBDC Adoption

• Enhancing efficiency and reducing the costs of payments
• Crime prevention and anti-money laundering
• Strengthening the implementation of monetary policy
• A decrease of cash and improved inclusive banking for citizens.
• Access to risk-free payment for citizens

The Lows of CBDC Adoption

• Low capital for commercial banks since bank deposits are now directly linked with the central bank
• Public access to central bank currency supplies which delegates seemingly additional power to them.
• High-interest rates by commercial banks to meet up with a shortage of operating capital.

The Bank of Japan report did not give any hint on whether the institution will decide whether or not to issue a CBDC in the future. However, we know that different countries already have different views about incorporating the controversial, innovative payment tool.

In the past, we have reported efforts by regions such as Iran and Thailand to launch a CBDC.