Japan Passes Stablecoin Bill to Protect Investors

Japan has become one of the first countries in the world to pass a legal framework for stablecoins, providing clarity about their definition and who can issue them, Bloomberg reported on 3 June.

According to the announcement, the bill was prepared by Japan’s Financial Services Agency (FSA) in late 2021, accepted by the House this March, and finally passed by a majority in the House of Councilors plenary session. The new legal framework will reportedly come in effect sometime in 2023, with the FSA using the remaining time to develop and introduce regulations regarding stablecoin issuers.

The bill has finally clarified the definition of stablecoins in Japan, which will now be considered as digital money, and must be linked to the price of the yen or another legal tenders as to guarantee its holders right to redeem the token at face value. The bill also places limitations on who can issue stablecoins, the right to which will belong to licensed banks, registered money transfer agents, and trust companies.

Japanese news agency Nikkei noted that the new legal framework is meant to protect not only investors, but also the financial system from the risks associated with the rapid adoption of stablecoins. Surprisingly, the bill does not address the issue of existing asset-backed and algorithmic stablecoins, though exchanges in Japan are known for not listing stablecoins.

Japan’s stablecoin bill comes almost a month after the TerraUSD (UST) token disaster. At the start of May, Terra’s algorithmic stablecoin started to lose its 1:1 peg to the U.S. dollar and eventually collapsed in price, which resulted in multi-billion losses on the crypto market. Some might even argue that the collapse of UST was one of the main driving forces behind the massive decline of the cryptocurrency market we have experienced in the past month.