Japan recently approved a bill that defines stablecoins as digital money as long as they have a peg with a legal tender. The new law establishes that only authorized banks, registered money transfer agents, and trust companies can issue those cryptocurrencies.
Japan is among the leading economies to introduce a legal framework for regulating stablecoins. Those cryptocurrencies have jumped onto the global stage after the TerraUSD token collapsed last month.
The Japanese Parliament recently approved a bill that clarifies the legal status of stablecoins, defining them as digital money. They must have a peg with the yen or another legal tender and grant their holders the right to redeem them at face value.
The new law also introduces a registration system for financial institutions to issue stablecoins and implements anti-money laundering measures.
The bill aims to protect investors and the financial system from risks associated with the rapid adoption of stablecoins. The market of those cryptocurrencies has skyrocketed to 20 trillion yen, equivalent to over USD 150,000 million.
The new legal framework should enter into force in 2023. Besides, Japan Financial Services Agency plans to issue regulations concerning stablecoin issuers in the coming months.
The bill on stablecoins comes amid a massive decline in cryptocurrency markets. The Terra USD (UST) algorithmic stablecoin lost its peg with the US dollar in early May, which fueled that drop.
According to Bloomberg, stablecoins have a capitalization of around EUR 149.63 billion, equivalent to USD 161 billion. They highlight that the leading stablecoins are Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).
Only Authorized Banks Can Issue Stablecoins
The bill states that only authorized banks, registered money transfer agents, and trust companies can issue stablecoins. The FSA (Financial Services Agency) reports the introduction of the regulations concerning stablecoin issuers will occur in the coming months.
Mitsubishi UFJ Trust and Banking Corp. has disclosed its plans to issue its stablecoin Progmat Coin. The Tokyo-based bank said that yen reserves in a trust account would back it fully.
That quick action by Japan could help restore confidence in cryptocurrencies after the UST collapsed.
The crash of Terra also affected global cryptocurrency markets and heightened regulatory concerns. In that regard, US Treasury Secretary Janet Yellen pointed to the stablecoin UST as a rapidly rising risk.
Later, she clarified that cryptocurrencies generally do not pose any systemic risk to the financial system.
Japan Bets on the Use of Cryptocurrencies
In May, the Bank of Japan (BoJ) announced that it had completed the first phase of its Digital Yen. Furthermore, the bank has moved into the second stage of experiments to examine more precise functions. The latter includes setting limits on the amount of central bank digital currency (CBDC) that each entity can hold.
The Bank of Japan plans to complete the second phase of its CBDC in March next year. The financial institution has thought about doing a pilot test on consumers and businesses in the future.
Sumitomo Mitsui Trust Holdings (SuMi) recently announced that it would create a trusted company with the Japanese cryptocurrency Bitbank. SuMi wants it to manage the digital assets of its customers.
They will call the firm Japan Digital Asset Trust Preparatory Company (JADAT). They plan to offer their clients custody services for digital currencies and non-fungible tokens (NFTs).
By Alexander Salazar
