The Bank of Japan is considering issuing a central bank digital currency (CBDC) as it explores the benefits of cashless payments, according to a new research report.
The report, titled “Digital Innovation, Data Revolution and Central Bank Digital Currency,” was published by the bank on Tuesday, the latest in a series of reports to examine bank policy towards new technologies. The findings were prepared by Professor Noriyuki Yanagawa of the University of Tokyo Graduate School of Economics and Hiromi Yamaoka of the Bank of Japan and the Institute for Monetary and Economic Studies.
While the report confirms the bank has no plans for a CBDC at this time, the authors recognize the additional functions crypto offers beyond traditional payments, as well as the wider implications of more efficient, direct blockchain transactions.
It noted, “Digital innovation expands the possibility of money and enables new types of money with a variety of functions to emerge. These functions may include not only traditional payments but also processing various information and data attached to payments as well as executing transactions.”
“In order to consider the pros and cons of central bank digital currencies as well as the future of money, it is needed to assess their possible impacts not only on payment efficiency but also on financial structure and the overall economy. It is also important to examine their impacts on effective utilization of data and the dynamics of ‘networks externality,’ which is one of major characteristics of payment infrastructure,” according to the research paper.
The report reflects on a number of benefits for central banks issuing cryptocurrencies, such as the reduced cost of economic transactions over cash, improving financial inclusion rates worldwide and enhancing privacy.
Intriguingly, the authors also suggest cryptocurrencies can help with crime prevention and anti-money laundering protections, by reducing paper bank notes in circulation and recording transactions on a digital ledger.
While the Bank of Japan has yet to announce a formal policy position on CBDCs, the central bank has been known to be actively considering embracing the technology further. The report indicates the bank is increasingly supportive of the benefits of CBDCs, at a time when a growing number of central banks are investigating issuing their own cryptocurrencies.
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