Japan throws good money after bad
By Makoto Nishibe, Senshu University and Adrian Black, 360info (Eds: EMBARGO: 07:00 IST 12/22/2021) Kawasaki (Japan), December 21 (360info) Japan, a pillar of the monetary society, goes digital as as the pandemic pushes payments into a new paradigm.
Money is always king. But since 2011, the cashless payment ratio has more than doubled, and in 2020, cashless payments made up 29.7% of consumer spending in Japan.
Several private payment systems based on QR codes have been in operation since 2018 and are now in fierce competition as consumers use their smartphones to conduct contactless transactions.
The current leading system, PayPay, had around 25 million users as of February 2020.
This trend intersects with community currencies – currencies issued locally to encourage growth and development – to reduce both the rate of COVID infection and the outflow of currency from communities.
Japan has a mature ecosystem for community currencies, which it has been experimenting with since 1973.
The goal of the Volunteer Labor Bank was to support female volunteers in childcare and health care, and would offer one point (about 400 yen) to volunteers per hour of service.
A decade later, the program has been replicated in other parts of the country, with varying degrees of success.
Gresham’s Law – that “bad money drives out good (money)” – explained the tendency of the public to accumulate legally undervalued coins, while circulating legally overvalued money.
Gresham, an English merchant and financier living in the 1500s, explored the debasement of minted coins. But the concept of “good money” is increasingly applied to modern digital currencies such as cryptocurrencies.
Hayek, an economist writing four centuries after Gresham, argued that a currency can become “good money” when several currencies of different quality compete with each other and offer consumers a choice.
In this case, he argued, “good money drives out bad”.
Today, digital community currencies such as Sarubobo Coin in Hida Takayama Town and Aqua Coin in Kisarazu Town are spreading in local communities and aiming to become ‘good money’.
To encourage their use, employees of local government, local institutions and chambers of commerce receive these coins as part of their monthly payment packages.
Whether they will be able to create a virtual local market for local currency in the local community and achieve regional development is another question.
If the circulation of these currencies can expand from the consumer goods market to include capital goods, capital goods and labor, then these digital currencies will be on the way to becoming “good money”. in their communities.
What is this for you? Both Sarubobo Coin and Aqua Coin are pegged to the yen, providing stability that many other digital currencies like cryptocurrencies do not enjoy. However, the principle of choice of currency does not apply when currencies are monopolized by the State and legal tender is dominant. The “one nation, one currency” institution of modern money still prevails.
For currency selection to apply, currencies must have different measure denominations, and their exchange rates do not have to be fully fixed.
The question is, is this the right time to be pegged to a native currency? For relatively low circulation digital community currencies, the answer is almost certainly yes. However, the balance sheets of central banks across the world have grown rapidly as countries strive to support their economies in response to the COVID crisis.
The Bank of Japan, as part of its Abenomics policy, continued quantitative easing (QE), or an unlimited supply of currencies with negative interest rates, with the aim of reaching an inflation target of 2 %.
Japan has seen two prime ministers since Shinzo Abe, but its approach to monetary policy has remained largely unchanged.
The weaker yen improved the performance of exporting companies and inflated stock prices. However, inflation did not happen as expected because banks did not increase their lending to provide deposit money to the market, due to the risks of lending in a sluggish economy.
The government’s inflation targeting policy aims to improve the economy by increasing nominal prices through an increase in the money supply despite the lack of favorable investment opportunities.
Elsewhere, fears of above-target inflation fueled by supply chain shocks from the pandemic have dragged markets as fears of the Omicron variant are addressed and uncertainty reigns.
Will this cause native currencies to “hunt” the currencies of the digital community? Or will the need to support local communities catalyze a revolution in the adoption of community currency? Time will tell if Gresham’s or Hayek’s Law will apply. (360info.org) AMS AMS
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