What is it worth to you?
Both Sarubobo Coin and Aqua Coin are pegged to the yen, offering a stability not enjoyed by many other digital currencies such as cryptocurrencies. The principle of choice in currency, however, does not apply while currencies are monopolized by the state and legal tender is dominant. The "one nation, one money" institution of modern money still prevails.
For choice in currency to apply, the currencies must have different denominations of measure, and their exchange rates must not be fixed entirely. The question is: Is it a good time to be pegged to a native currency?
For digital community currencies with relatively low circulation, the answer is almost certainly yes. Central bank balance sheets across the world, however, rapidly expanded as countries grappled to support their economies in response to the Covid-19 crisis. The Bank of Japan (BoJ), under its Abenomics policy, continued quantitative easing (QE), or an unlimited supply of cash currency with negative interest rates, in an attempt to achieve an inflation target of 2 percent. Japan has seen two prime ministers since Abe Shinzo stepped down in 2020, but its highly loose monetary policy has remained largely unchanged, though the central bank now has had a new governor since April this year.
The weaker yen improved the performance of exporting companies and boosted stock prices. Inflation did not occur as expected, however, because banks did not increase their lending to supply deposit money to the market because of the risks of lending in a slow economy. The government's inflation targeting policy has aimed to improve the economy by raising nominal prices through an increase in money stock despite the lack of favorable investment opportunities.
During the pandemic, fears of above-target inflation fueled by Covid-related supply chain shocks caused markets to slide, as concerns about the Omicron infection wave were priced in and uncertainty reigned. But in March 2022, core inflation did increase above the BoJ’s target, driven by global energy and supply-chain disruptions due largely to the Ukraine crisis, and has remained above it through April 2023, fueled by the return of tourism. Headline inflation reached a four-decade high in February 2023, with core inflation (not including fresh food and energy) hit a four-decade high of 4.1 percent in April 2023.
The question in Japan and elsewhere is whether native currencies – and indeed the arrival of central bank digital currencies (only at pilot stage of development in Japan) – will “drive out” digital community currencies? Or will the need to support local communities, ebbing thought it may be with the end of the pandemic, catalyze a revolution in community currency uptake? Will Gresham’s or Hayek’s law apply?