Japan Passes Stable Coins Law Protecting Crypto Investors

Japan has passed a landmark law clarifying the legal status of stablecoins, embarking on an international race to build safety nets around tokens whose peg to mainstream currencies underpins the broader cryptocurrency market.

Japan’s move, part of a five-year effort to protect consumers investing in cryptocurrencies, followed last month’s shock collapse of TerraUSD, which sparked debate over whether tokens were to be regulated, prohibited, or left alone.

Japan’s Financial Services Agency had prepared regulations for stablecoins long before the market crashed and argued in an article last year that a “higher level of regulatory discipline” was needed for stablecoins. instruments with such a significant potential impact on financial stability.


Japan’s upper house of parliament on Friday passed a bill that essentially defines stablecoins as digital currencies, imposes a mandatory link to the yen, and enshrines the right to redeem them at face value.

The legal structure will come into effect in 2023, with the FSA expected to clarify the rules for stablecoin issuers in the coming months. Analysts said the legal framework could make it difficult for foreign players to enter the market.

Under the new legal definition in Japan, the issuance of stablecoins will be limited to banks, trust companies, and certain licensed money transfer agents.

The move echoes the FSA’s successful push in 2017 for Japan to become the first major economy to recognize bitcoin as a currency. Soon after, it became the first government to issue formal operating licenses to crypto exchanges.

The official legitimization of bitcoin in Japan sparked a significant increase in its market value, although the FSA’s enthusiasm was dampened in late 2017 after customers of the Tokyo-based exchange Coincheck lost $530 million in a heist. digital.

Prior to the passage of the bill, Mitsubishi UFJ Trust and Banking Corp announced its intention to issue its own stablecoin, called Progmat Coin.

Japan’s regulatory effort came amid a global debate over whether regulations should be tightened for stablecoins and other digital currencies.

The collapse of terra, which briefly lost its peg with the US dollar last month, sent shockwaves through global crypto markets and heightened regulatory concerns.

Stablecoins such as TerraUSD offer what should be a stable store of value compared to traditional currencies, unlike other more volatile crypto tokens, including bitcoin.

In a speech this week, Andrew Hauser, a Bank of England official, warned of the risks of holding TerraUSD and other digital currencies, saying any stablecoin reaching “systemic size” should respond. to standards equivalent to those of commercial currency.

“In practice, this will likely mean being issued by a bank or by a non-bank subject to strong central bank regulation and supervision,” he said.

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Japan Passes Stable Coins Law Protecting Crypto Investors

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