Could Japan Transform into a Cashless Economy?

This article was first published here

In a bid to reach a highly elusive objective of a 2% inflation rate, the Bank of Japan has been discussing numerous approaches, and the elimination of cash might well be the solution according to experts.

Over the past five-year period, the Bank of Japan (BOJ) has implemented a number of policies and tripled its monetary base so as to reach a 2% inflation target by 2019. But injecting new money into the Japanese economy has not helped make this objective a reality.

Initiated by the bank’s chief Haruhiko Kuroda who started his tenure in 2013, the process started out with efforts to increase the BOJ’s holdings in government bills and bonds. This saw the value of outstanding securities go from 12% to 48%.

He also made the bank one of the 10 top shareholders in 40% of Japanese companies whose shares were publicly traded.

The idea behind these aggressive moves was to prevent the country from the inevitable slide into deflation that had been taking place for some years before he assumed office.

When this did not happen, the BOJ adopted a negative interest policy, a strategy that had worked for Denmark, Switzerland and Sweden. But the Japanese economy did not benefit from this either.

Would a Digital Currency Do the Trick?

Andy Mukherjee, a Bloomberg opinion columnist suggests the issuance of a national digital currency, saying:

“

To rescue [BOJ’s monetary policy], [Prime Minister] Abe must go beyond private-sector initiatives…What’s required is a public-sector push to replace all physical cash with a national digital currency.”

Such a move would be similar to the one taken by Sweden, which has already initiated a transformation into a cashless system, set to eliminate cash transactions by 2023.

In his opinion, if the government were to forcibly implement a digital economy overhaul, it would eliminate cash dependence and save the BOJ’s monetary policy.