Japan's Central Bank Believes Blockchain Could Create Tax Issues

Growth in the use of both digital currencies and distributed ledgers could hold regulatory and monetary policy implications, a senior official for Japan’s central bank said today.

Speaking during a fintech event at the Univeristy of Tokyo, Bank of Japan deputy governor Hiroshi Nakaso remarked about the benefits and risks of the increasing digitization of financial services. Particularly, he noted that the use of distributed ledgers could lead to confusion among regulators in instances where wholly electronic ledgers are maintained.

He told attendees:

“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 has commented on the technology in the past, speculating in August that it could potentially reshape some functions in the financial space.

During the event in Tokyo this week, Nakaso echoed past comments in suggesting that digital currencies, should they see wider use among consumers, could affect how central banks conduct monetary policy.

“Indeed, if virtual currencies such as bitcoin are to be widely used to purchase goods and services directly, there should of course be influences on monetary policy,” Nakaso said. “At present, however, the consensus view in various international forums is that virtual currencies are unlikely to overwhelm sovereign currencies.”

Nakaso closed his speech by calling for greater collaboration among stakeholders in the fintech space.

“In order to overcome those issues, we need to cooperate with a wide-range of entities, including private businesses and academics in particular,” he concluded.

Image Credit: Bloomberg