The Deputy Governor of the Bank of Japan, Hiroshi Nakaso, has revealed that there is no plan to issue digital currencies as a substitute for banknotes at the present time. Still, the official added the bank would “make utmost efforts” to understand and research blockchain technology, an innovation “born” with bitcoin in 2008, as stated by Nakaso.
The Deputy Governor was speaking [PDF] at the University of Tokyo – Bank of Japan Joint Conference in Tokyo late last week. He opined that blockchain or distributed ledger technology (DLT) presents significant potential to affect “money” and “ledgers”, the basic pillars for financial activities.
Fintech models simulate positive feedback between finance and the economy, Nakaso stated, due to financial inclusion bought on by FinTech innovation.
If people in developing countries gain new access to financial services through FinTech, they will gain opportunities to expand business such as e-commerce and e-learning, which are currently hampered by constrained access to payment services. In this manner, FinTech is expected to contribute to economic development.
Furthermore, the senior central bank official categorized financial technology into three separate types, namely blockchain, AI and big data, and smartphone innovation through massive adoption of devices in the past decade.
“In my view,” the official said, categorizing Fintech, “the first category includes ‘blockchain’ and LDT, which were invented in 2008 with the concept of “bitcoin.”
The cumulative use of these innovations could help establish a “virtual bank” without the need for any tangible infrastructure, the official added.
Pointing to blockchain, “born in 2008” with bitcoin as the “flagship technology” in Fintech, the official further opined that a majority of the efforts to implement the technology into real-world scenarios are still at an experimental stage.
Fintech advances could lead to a number of issues, the official added, particularly with regulation and taxation.
Moreover, if FinTech stimulates economic transactions through the internet and smartphones as well as business applications of DLT, it might become increasingly difficult to identify the physical “location” where transactions take place and the relevant ledgers are kept. This could lead to a variety of issues including those related to regulation and taxation.
Nakaso highlighted the overlap that occurs when decentralized ecosystems like bitcoin see centralized trust, as in the case of users’ bitcoins stored among now-defunct bitcoin exchange Mt. Gox’s wallets.
“People tried to avoid the cost of managing keys accompanying decentralized-type information processing by entrusting their keys to a third party, Mt. Gox”, the official stated.
The eventual failure of bitcoin’s most-notable implosion is not the fault of bitcoin itself, but that of Mt. Gox, he said.
[T]heir (users’) trust was destroyed by the misconduct of the third party. In this regard, the problem of the Mt. Gox case did not stem from DLT itself but was similar to classic cases of misconduct in the financial industry.
The narrative of FinTech disruption and the ensuing financial inclusion that would boost economies and finance had the official address the obvious notion – would or perhaps when would central banks adopt digital currencies as a means to keep up with technological innovation.
Pro-digital currency advocates arguing for the Japanese central bank to issue its own digital currency claim reduced processing and storing costs, when compared to paper banknotes, Nakaso said.
While the Bank of Japan will “make the utmost efforts to deeply understand new technologies including blockchain and DLT,” the official added:
The Bank of Japan has no specific plan to issue digital currencies as a substitute of banknotes.
Despite the lack of a specific rollout plan, Nakaso’s revelations hint at a measured, specific effort by the central bank in a technology-forward nation like Japan, to consider digital currencies in the future. The bank will be cooperating with academics, he noted, to ponder and come up with solutions for important and significant questions in the face of a central-bank issued digital currency.
For example, to whom should the central bank provide its account, as technological innovation changes the financial structure and the list of financial service providers? To what extent should the central bank provide “finality” to economic society? How should the information linked to payment transactions be handled?
The BOJ official’s comments come during a time when other central banks around the world are talking and even recruiting talent to help develop bank-issued digital currencies. The most notable endeavor of the kind is that of the People’s Bank of China, which has been researching the possibility of issuing its own digital currency since 2014, although the effort only became public knowledge earlier this year. Earlier this month, the PBOC, China’s central bank, issued a recruitment notice seeking applicants with expertise in blockchain technology development, cryptography and big data, a telling sign of the bank’s interest in fast-tracking its own digital currency, which it intends to do “as soon as possible.”
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Last modified: November 21, 2016 10:30 UTC