There are a few cryptocurrencies whose values are pegged to the Japanese Yen, US Dollar, and other currencies. Japan’s parliament has passed a new bill to restrict those interdependences. The new law is aimed at investor protection by minimizing the financial risks of stablecoins.
Once this new law is imposed, the payment services will be revised. This will result in only licensed banks, registered money transfer agents, and trust companies being able to issue stablecoins. Japan further plans to implement a standard system of registration for their circulation in order to curb money-laundering activities.
This restriction of algorithmic backing of stablecoins was first recommended by the Financial Service Agency (FSA) and reiterated by the country’s Vice Minister for International Affairs, Tomoko Amaya. At the Official Monetary and Financial Institutions Forum (OMFIF) roundtable, Amaya gave a speech detailing Japan’s regulatory framework and emphasizing the factors of financial stability, user protection, and anti-money laundering.
The legal reform comprises three main points: regulation of stablecoins, rules for joint monitoring of money laundering, and crackdowns on money-laundering tools. This marks the first-ever legal regulation of stablecoins.
Stablecoins are designed to have a largely stable price – a factor generally achieved by pegging to a major currency or having its supply regulated by an algorithm. These cryptocurrencies are handled by “issuers,” entities responsible for issuing and managing them. Circulation is taken care of by other entities called “intermediaries.”
While this legal reform might be stablecoins’ first ever, it certainly will not be the last if the current global trends are anything to go by. These regulations stem majorly from the concern that cryptocurrencies will, sooner or later, affect mainstream financial systems.