Former BOJ official warns against use of digital yen in the financial sector

A former Bank of Japan (BOJ) official who is said to have led the digital currency investigation is now advising against its use.

According to a report published in Japan Time, Hiromi Yamaoka, the former head of the BOJ’s financial settlement department, advised against using the digital yen as part of the country’s monetary policy.

Yamaoka’s biggest concern lies with the negative interest rates and believes that when the digital yen becomes a prominent tool for mass payments, the general public should bear the brunt of the fading value of the fiat currency. He went on to warn that the digital yen could pose a risk to financial stability and could have disastrous results for the economy.

Yamaoka is currently working in the private sector, chairing a forum of 74 companies that include some of the largest banks in the country. The forum is currently working on launching a private digital currency as early as April this year.

Related: Japan will prioritize simplicity in CBDC design, says central bank manager

In October 2020, the BOJ divided a three-phase test outline for its central bank digital currency (CBDC). The first two phases of the test are focused on testing the proofs of concept while the third phase would see a pilot. The first phase began in April 2021 and is expected to be completed by March this year. The BOJ expects to begin the second phase of testing later this year, which will test the technical aspects surrounding the issuance of the digital yen.

Despite being one of the first nations to introduce cryptocurrencies, cash is still king in the Japanese retail sector due to natural disasters that often cease to power in the country. Thus, the payment sector in the country is more focused on executing offline transactions. In July 2020, the central bank published a study report focusing on developing offline CBDC.

BOJ Governor Haruhiko Kuroda said in a statement on Friday that they are not looking for an immediate launch. He also noted that a digital yen could be launched by 2026 and the decision will not be made by the central bank alone.