New Report Exploring Japanese Central Bank Digital Currency Released
By Luke Flowers – Crypto Investor
The Bank of Japan (BoJ) has released a report examining the role of Central Bank Digital Currencies (CBDCs) in the current monetary system. The paper argues the possible benefits and consequences of introducing a CBDC such as impacts on payment efficiency, intermediation for bank funds, liquidity crises and the transition mechanism of monetary policy.
CBDC and digital innovation enable new types of money with their own unique functions. When you spend traditional fiat, there is a transfer of value attached to it. If someone was to buy crypto for a purchase, there would be a transfer of value as well as the possibility of processing information and data attached to the payment. This mechanism would save time for the merchant by cutting out processing by automating it with the smart contracts.
The introduction of a CBDC would have a much greater impact than a decentralised network like Bitcoin. A CBDC would need to be assessed on the potential impact on the financial structure and overall economy. The paper explains that CBDCs can be categorised into two types. The first are CBDCs to be used by the general public for daily transactions instead of bank notes which will encourage crypto buying. The second are CBDCs for large value settlement. These are based on central bank deposits and utilise Distributed Ledger Technology (DLT).
A CBDC will be accessible 24/7 unlike traditional banking services that can incur delays. This would give greater reassurance to buy and sell cryptocurrency as the settlement will be instant. These users could make instant transfers or purchases even when the centralised banks are not operating.
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