The Russia-Ukraine war has gradually intensified, with the Russian troops progressing rapidly to capture Ukraine’s capital, Kyiv. Following Ukraine’s invasion, the US, NATO, and the EU Commission have slammed severe economic sanctions against Russia to stop it from a further incursion into Ukraine.
Former Bank of Japan (BoJ) executive, Hiromi Yamaoka, has stated that the sanctions against Russia as a penalty for invading Ukraine may spur countries to adopt Central Bank Digital Currency (CBDC) as a defense against the US dollar’s dominance in the international financial markets. These sanctions have prompted a few central banks to consider the adoption of CBDC in their respective countries.
More Countries Adopts CBDC
Yamaoka confirmed that China has already started the process by introducing its digital Yuan. He feared that the US and allies overused financial structures for sanctions against Russia. However, economic sanctions are necessary tools for extreme international occurrences such as the Ukraine war but should not be abused.
More US allies have issued economic sanctions against Russia, with Japan, Switzerland, and a few others joining lately. However, Yamaoka trusts that whatever condition that must have pushed Russia to its limit was a deliberate creation. Therefore, the most effective and efficient tool in the sanctions against Russia was freezing its foreign reserves.
Japan Restricts Payments to Russian Accounts Amidst Talks for CBDC
Furthermore, the G7 has issued a joint communique, ensuring that Russia, its elites, and oligarchs cannot escape international sanctions against it by leveraging digital currencies. In line with the resolution of the G7, the Financial Service Agency of Japan revealed that it had obtained an authorization notice from the government, mandating it to impose severe restrictions on targeted accounts belonging to Russia and Belarus.
Payments and transactions to those accounts can only be made without permission to act accordingly.
Yamaoka stated that irrespective of Japan’s resolve to tackle Russia through its sanctions, countries’ internal security and defense structure would take center stage when addressing the issue of CBDC issuance and adoption.
He added that there is a high possibility that China, for instance, might introduce the digital yuan as a financial instrument for international payments, which will consolidate its strength against the supremacy of the US dollar.
At the Bank of Japan, Yamaoka was in charge of the payment and settlements systems division; thus, he is well-schooled about discourses bordering on CBDC and the international financial settlement system.
On the other hand, a financial technology consultant and renowned author, Richard Turrin, shared similar thoughts with the opinion of Yamaoka. Speaking on CNBC’s Squawk Box Asia, Turrin predicted that this decade might experience an unprecedented rise in China’s yuan. He noted that such promotion could counter the supremacy of dollars in the international trade payments system.
Turrin further stated that China had remained the most extensive trade destination for quite a period. The yuan will gradually overtake the dollar as a trade payment option when purchasing from China. As a result of the above, there is a tantalizing possibility that other countries would scout for more favorable payment means to stop the dollar’s dominance in the international markets.