- Stablecoins are now considered legal digital currency in Japan.
- Nonetheless, they must be backed by the Japanese yen or another authorized tender that allows holders to use them at face value.
- Stablecoins can only be issued by licensed banks, money transmitters, and financial trust companies
The Japanese parliament gave its approval to a bill that recognises stablecoins as digital currency earlier today. This drew attention to Japan as it stands as one of the first major economies to establish a legal framework for stablecoins.
Stablecoins approved in the Land of the Rising Sun must be backed by the Japanese yen or another legal settlement currency, and holders must be able to redeem them at face value, according to the law.
The law will enter into force one year after it is passed.
Furthermore, only licensed banks and well-known businesses were allowed to issue stablecoin. Stablecoins aren’t used by crypto companies in the country, to be sure. Within the next few months, a number of additional rules are expected to be released. This would be overseen by Japan’s Monetary Providers Company, according to reports.
However, popular stablecoins in today’s cryptocurrency market, such as USDT, USDC, and algorithmic stablecoins, are not mentioned in the law. These stablecoins are not currently listed on any Japanese crypto exchanges.
TerraUSD, or UST, began to deviate from its intended 1-to-1 peg to the US dollar in early May, when the combination of algorithms and trader incentives designed to protect the link failed to function as intended.
Mitsubishi UFJ Trust and Banking Corp has stated that once the legal framework is in place, it intends to launch its own stablecoin, Progmat Coin. The bank, a subsidiary of Mitsubishi UFJ Financial Group Inc., said the token will be fully backed by yen held in a trust account and will be redeemable at face value.
The expansion of the stablecoin sector, which has a significant risk possibility, is drawing the attention of governments worldwide. Many other stable coin projects suffered a symbiotic effect after the algorithmic stablecoin TerraUSD (UST) collapsed in May, resulting in significant losses for many investors.
The bill, prepared by Japan’s Financial Services Agency (FSA), was scheduled to be introduced in late 2021, was approved by the House in mid-March this year, and was finally passed by a majority in the House of Councillors plenary session.