Japan to implement bank-deposit-backed digital currency in 2022

https://asia.nikkei.com/Business/Finance/Japan-to-implement-bank-deposit-backed-digital-currency-in-2022

133 84 5 years ago

asia.nikkei.com

This is related to yesterdays: https://news.ycombinator.com/item?id=29312300

Japan is on the verge of economic collapse. Negative interest rates, major deflation during all of covid. Barely pulling out of deflation and trending back downwards.

https://tradingeconomics.com/japan/inflation-cpi

Japan is in deflationary spiral due to high taxes and tremendous debt. Deficit spending to temporarily pull themselves out of deflation and recession will only makes things worse in the long term.

jbay8085• 5 years ago

Is there some reason why a country experiencing deflation can't print money and hand it out to voters until inflation returns?

ionwake• 5 years ago

I think the person you replied to got confused - Japan is experiencing a severe collapse and suffering from inflation in most asset classes.

DennisP2• 5 years ago

In theory, they could. In practice, the typical way to "print money" is to do things like lower interest rates (incentivizing more borrowing, which increases the money in circulation) and lowering bank reserve requirements (letting them loan more in proportion to their reserves). Both depend on people voluntarily taking out loans, which they might avoid if they're pessimistic about the economy or expect deflation.

seibelj• 5 years ago

Japan is a very rigid economy where doing things a bureaucratic, traditional way is prized and new innovations are difficult and slow. They have low immigration and culturally non-Japanese cannot assimilate fully. Their birth rate is low, they can't replace population with immigrants, and an ever increasing percentage of those who are alive are old, no longer productive / contributing to the economy, and spending money on end-of-life things in retirement.

No matter how much money they print, it can't solve for an economy where there are fewer consumers and producers every year.

sleepysysadmin3• 5 years ago

Is there some reason why a country experiencing deflation can't print money and hand it out to voters until inflation returns?

That's a great question. Japan has been doing this for about a decade. Shinzo Abe kind of called it abenomics; aka quantative easing. https://en.wikipedia.org/wiki/Abenomics

It has worked, no question, effectively exactly as you propose. The problem is that it clearly didn't solve the problem. While also creating new problems and since the original problem never gets solved, when you are forced to cut spending because the cost of debt has become too crippling. You retain all the new problems and now feel the old problems.

https://tradingeconomics.com/japan/government-spending-to-gd...

https://tradingeconomics.com/japan/government-debt-to-gdp

266% debt to gdp is about 24% higher than the peak drama about Greece's collapse.

https://tradingeconomics.com/japan/government-budget

Haven't balanced their budget since the 1990s.

Tough decisions coming for Japan.

whytaka• 5 years ago

If they were giving it out unevenly it would be unjust.

If they were giving it bout evenly, there’d be no difference. Nominally, the price of goods would increase but so would your reserve. So there’be no added incentive to buy.

roywiggins3• 5 years ago

I dunno, they've been stumbling through deflation for 30 years now, why not expect them to keep muddling through?

https://en.m.wikipedia.org/wiki/Lost_Decades

Psillisp• 5 years ago

This feels like the hallmarks of a system that over values 'hard work' but doesn't value entrepreneurship or risk taking.

Corporate rent seeking is proper up by a strong welfare state.

"Herein lies the unique twist that Piketty’s theory takes on in Japan: the disparity is not so much between the super-rich and everyone else, but between large corporations, which can retain earnings and accumulate capital, and the individuals who are being squeezed in the process."

https://www.weforum.org/agenda/2015/03/why-inequality-is-dif...

m3kw9• 5 years ago

I’m just confused about this. Isn’t most money system digitized already? When we buy stuff online it is indistinguishable from digital money, and the bank as far as they are concerned is seeing numbers on a screen from a database, which is backed by fractional deposits.

rich_sasha• 5 years ago

Central bank digital money normally means normal bank account but held directly with the central bank

Kaytaro• 5 years ago

Yes, the only difference is this currency will be on a blockchain. Although I'm assuming it will be completely centralized so I'm not sure what benefits this will have over a traditional database.

gogopuppygogo• 5 years ago

Gives government more ability to track flow of capital. Hugely awful move for the world to give government more control.

mistrial93• 5 years ago

Eliminate or substantially reduce third-party transaction guarantee fees, and at the same time, one-hundred percent of the transactions are digitally recorded.

A preponderance of big finance relies on trusted third-parties to intermediate transactions. Those third parties charge non-negligible fees to execute each and every transaction. Large value transactions can be done between untrusting parties directly, due to rigid cryptographic signing of the transaction record.

ne0flex• 5 years ago

Basically it means that you'll have a bank account directly with the government. They'll be able to monitor every transaction you make from that account and block transactions on your account.

It'll also give the government the ability to add conditions to your money (ie. you need to spend X amount of yen / dollars this month or your money will expire and you'll lose it), or your money can only be spent at approved stores.

hogFeast2• 5 years ago

This is specifically not what this is. Banks in Japan have a central role in the economy so the govt has no wish to remove the ability of banks to create money (they are also have a lot of political power). The digital currency will be backed by bank deposits, and the aim of this appears to be creating a interbank payments system that can run with lower costs.

ac29• 5 years ago

The article says this is being run by a group of banks and other businesses, not the government.

threeseed2• 5 years ago

This comment is the literal definition of FUD.

The idea that a government or bank would expire your money is pretty hilarious.

cortesoft2• 5 years ago

The government can do way worse than add conditions to your money. They can arrest you and put you in jail.

They can already take all your money. They can take it no matter what form you put it n in.

narism2• 5 years ago

It'll also give the government the ability to add conditions to your money

Some of China’s experiments with digital RMB have already done this where the money they handed out had an expiration date. Japan as well with the GoToTravel/GoToEat stimulus campaigns where the money equivalent could only be used at certain hotels/restaurants.

3232• 5 years ago

When people say "digital money" they mean being able to for example move it from one account to another with a few lines of Python code, like you can with Bitcoin/Ethereum/Tether.

You can't really do that with USD, you need an intermediary like Stripe, an attached bank account, ...

cortesoft2• 5 years ago

Yeah, but this new system will still have a middleman, the bank...

admax88qqq• 5 years ago

Japan is still very cash based.

makeitdouble4• 5 years ago

When buying stuff online, either the credit card network temporarily foots the bill until the charge actually hits your bank, or your bank processes the transaction directly and money moves away by a bank to bank call. It needs to ne synchronous and connected.

With this new system I’d assume you transfer ownership of your money but it doesn’t need to have both banks connect directly, and there might be a chance to have it work offline as well.

spullara• 5 years ago

So, debit cards?

Lazare• 5 years ago

Yes. In the US context, we already have a digital currency, they're called "US dollars".

Something that gets floated periodically is the idea of creating a bank that only accepts deposits, and then sticks them in the Federal Reserve. This is sometimes called "narrow banking", and one of the more prominent efforts to do this involved a proposed bank called The Narrow Bank or TNB. (Alternatively, you could let individuals deposit money directly with the Fed.)

If implemented, such accounts would be 100% backed. You have a dollar, you put it in the account, it sits there until you ask for it back.

There's an article here: https://www.spglobal.com/marketintelligence/en/news-insights...

As it noted, US regulators seem strongly opposed, at least for now.

elif• 5 years ago

It would be more accurate to call it "visa dollars" as transactions are only possible at the discretion of visa and by paying visa a fee.

A better example would be in new zealand they truly have digital "NZ dollars" because anyone can transfer them to anyone for no fee.

anm89• 5 years ago

It's a good question.

Those are second order digital money. They are not actual assets or liabilities on the central bank balance sheet. They are digital ious on a bank's balance sheet.

The difference here is that the asset and liability are moved directly onto the central bank balance sheet.

The reason this matters is because CBDCs are fundamentally about creating a hybrid fiscal /monetary policy tool that the central bank can use and allowing the central bank to digitally alter the balance sheet in a way that affects retail customers is the only thing that enables that.

As a side note, there is nothing which intrinsically ties these to crypto or block chain. You could implement this without either of those concepts.

victor22• 5 years ago

That's just traditional banking with extra steps...

balozi• 5 years ago

Don't forget that there is still nothing backing the bank deposits themselves. So yes, extra steps, and extra risk. Which also means extra room from intermediaries and fees.

makeitdouble4• 5 years ago

Being able to convert back go standard money is a big deal. Currently all the digital offline payment means are a one way trip: you can pay for goods with them, but not exchange with someone or return it to your account. This initiative would solve that issue.

Ericson23144• 5 years ago

https://www.reuters.com/business/finance/consortium-japan-fi... this one doesn't mention blockchain. Which gives me hope.

The cozy relationship between the state and the big corps gives me worry, but ideally:

1. Giving everyone a central bank account makes issuing a UBI really easy. That would be great for Japan to boost domestic consumption, and get those hikikomoris some non-shit non-saleryman jobs.

2. If this does eventually displace cash, they can also try out fun things like https://en.wikipedia.org/wiki/Demurrage which would really counteract deflation in all the right ways but none of the wrong ways.

Ultimately, per stuff like https://yalebooks.yale.edu/book/9780300244175/trade-wars-are... the world really needs the big exporter countries to consume more. The world we live in of large trade imbalances is not healthy for the US or the big exporters alike.

I don't think the US has the political will to overcome it's oligarchs and stop the imports, plus the poorer countries that don't even export a lot still greatly depend on our trade deficit to be able to get USD reserves. It is better the big exporters stop "importing our demand" so much, and focus more on domestic consumption (and at least China has stated they want to do this). That will put the pressure on the US from the outside to side-step our failed-state politics.

Ericson23144• 5 years ago

Oh I thought this thing involved the Bank of Japan, but evidently it is all private sector. Arg nevermined. Hopefully the Bank of Japan does indeed continue with it's exploratory plans, though.

howmayiannoyyou• 5 years ago

makes issuing a UBI really easy

Query: Who produces the goods & services that create value in a country/society when everyone is collecting UBI? Is it just the people who 'enjoy' working? And, when UBI causes baseline consumable prices to rise, we just keep raising UBI, right? Can we just call it for what it really is... communism? Why keep pretending?

ljm• 5 years ago

Communism would imply a lot more than providing a base income to everyone to keep them out of abject poverty. You might be thinking of socialist democracy which maintains a balance between unfettered capitalism and full-blown communism.

In the UK you get about 10k personal allowance before you have to start paying tax. That is one form of UBI although it requires you to earn an income (and you actually start to lose this allowance once you start earning over 100k). You could replace that all the same with a system that dumps 10k into your account every year and then starts taxing you for every penny earned (at a higher rate).

We have had the past 100-or-so years to learn, empirically, that both unfettered capitalism and full-blown communism are not particularly good ways to maintain a healthy society.

Ericson23144• 5 years ago

Who produces the goods & services that create value in a country/society when everyone is collecting UBI?

The people collecting UBI, duh. The events of the past 2 years have convinced me that even a small UBI can still have a large effect.

And, when UBI causes baseline consumable prices to rise, we just keep raising UBI, right?

Don't be an idiot. "pure inflation" is multiplicative, scaling all prices the same. UBI is additive providing a base-line income stream. The interaction will be very complex.

UBI can be paired with simple-stupid regressive taxes like VAT and still come out net-progressive.

There will be some adjustments in prices but a new equilibrium absolutely can be reached.

Can we just call it for what it really is... communism? Why keep pretending?

The idea is that "the first x dollars of consumption are socialism, the rest capitalism". It is not 100% socialism, don't be an idiot.

It is only bad if you believe society depends on sticks and workers will not work for mostly carrots. Is that what you believe?

rattlesnakedave2• 5 years ago

I'm very bullish on federated, permissioned, blockchains in the world of traditional finance, and here's why:

- Having ledger that is append only by a set of trusted parties gives you all of the benefits of a distributed ledger, as well as the ability to do things like clawbacks, comply with regulation, etc.

- The future I see is multiple blockchains operated by networks of payment processors. For instance, Visa, MasterCard, etc. can all work together to maintain one blockchain. Other countries / regions can have their own. Interop can be done with bridges (like in defi now).

- Throughput can be drastically increased between banks. Transactions become confirmed instantly. No more waiting several days for ACH. You can confirm a good balance from the sender, and credit the receiver instantly.

- "Just use a database" the hackernews commenter shouted out. Using a database instead of a blockchain limits what you can do in terms of 3rd party interop, and hamstrings you for upgradability in the future. Facebook's MySQL upgrade is taking YEARS, and they're a SINGLE TECH COMPANY. If you want to move faster, and maintain interop blockchain is the way to go.

- This opens the door to multi-asset blockchains between financial institutions. Instruments like loans, equities, etc. can be tokenized, FRACTIONALIZED and traded b/t institutions much more quickly than they can today, because they'll be a part of a permissioned verifiable system. Write a loan today, fractionalize and sell it instantly.

There's so much more that's possible here too. Technologies like HyperLedger are really moving the ball forward. I think a lot of the criticisms of this sort of thing are due to shortsightedness of what is possible.

carlineng• 5 years ago

I'm somewhat bullish on the promise of permissioned blockchain systems, but the Facebook/MySQL example is misleading --

* Facebook doesn't need MySQL to interop with other systems in the same way that blockchain enables.

* Relational semantics are way more complex than what most distributed ledgers technologies offer. A blockchain is more analogous to the MySQL binlog than to MySQL itself. I would guess that Facebook's DB transaction log is orders of magnitude larger than all the blockchains in the world combined.

* Facebook's challenges with MySQL are most likely due to their unprecedented scale. If one were to layer on the governance challenges associated with distributed ledger systems, I would think an upgrade like that would basically be impossible.

atom_arranger• 5 years ago

Regarding scale:

Bitcoin is a ledger of transactions, it has in the last 12 years had 690m transactions.

Facebook has 2.9B MAU. ~4X the number of transactions ever done on BTC.

Each user probably generates tens of “transactions” (changes to a DB) per month.

throwawaygh3• 5 years ago

Write a loan today, fractionalize and sell it instantly.

To make error is human. To propagate error to all server in automatic way is #devops. To burn down entire global financial system due to parser bug in bastardized typescript clone for blockchain contract language is #defi.

(On a more serious note, this sort of thing really rings of "what could possibly go wrong" for me :)

uses• 5 years ago

So, do I understand correctly that these are the main benefits of a CBDC?

  - A centralized ledger which is maintained by the central bank in question.  
  - Instant payment clearing - no ACH or other steps. You simply request a transaction and it happens immediately if it's possible.  
  - No fees - presumably you can send large amounts without paying for a wire transfer.  
  - Convertible into "regular money" with no fees or intermediaries. You can exchange this currency for traditional deposits at a regular bank, and vice-versa.  
  - Easy transactions with the government. You can pay your taxes, or get paid (stimulus payments, paychecks, for example), instantly.  
  - From the central bank / policymaker perspective, there are many benefits because of the gigantic amount of data they gain access to.

Would this be essentially like Fedwire, but for everyone rather than a special service for banks?

politician• 5 years ago

Just wait until you hear about FedNow...

Japan to implement bank-deposit-backed digital currency in 2022

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