The Japanese Stablecoin Ban Was Lifted and Banks Are Preparing to Move
Japanese firms can now issue stablecoins after a longawaited legislation came into effect today.
In a landmark moment for Japan, companies can now officially issue Japanese Stablecoins. The milestone comes as the updated Payment Services Act took effect on June 1, 2023.
The recently enacted act has laid down certain rules for companies wishing to issue tokens. These companies must show that they hold the necessary assets to back their coins. However, the act also specifies that not every company is eligible to issue these coins. This privilege is specifically reserved for regulated entities like banks, fund transfer services, trust companies, and other financial institutions.
The new legislation also includes stricter anti-money laundering regulations that mandate distributors to maintain transaction data records.
Interest from banks is expected to surge following this development. In an interview with Nikkei, Kondo Hidekazu from GU Technologies, a company that offers stablecoin technology to regional banks like Shikoku Bank, suggested that many regional banks are contemplating issuing stablecoins.
There’s speculation within the industry about the future strategies of financial service providers. Some suggest they might explore the idea of launching a “digital community currency”. It is expected to streamline payments between Japanese companies and their international counterparts. Experts estimate the business-to-business (B2B) payments market to be worth approximately $7.2 billion.
Why Do Japanese Banks Want to Issue Stablecoins?
CoinPost, a Japanese media outlet, reported on the potential impact of Japanese stablecoins on global transaction volumes. They suggested that if these stablecoins contribute significantly, it could simplify the process for issuers to generate fees by facilitating payments between multinational corporations. They also suggested that stablecoins could be a viable solution for international remittances and online shopping.
The revised law distinguishes between cryptoassets and stablecoins. It clarifies that algorithmic or cryptoasset-backed “stablecoins” do not qualify as stablecoins. The act establishes user protection and compliance guidelines. Token issuers must now have mechanisms in place to halt transfer and redemption of payments to wallets not under their management.
This development could significantly impact major Japanese banks like Mitsubishi UFJ, which, along with its partners, began a pilot project on stablecoin interoperability in March. Even the head of Japan’s central bank has spoken positively about stablecoins, asserting that they can coexist with central bank digital currencies (CBDCs).
The revised Payment Services Act in Japan allows regulated financial institutions to issue stablecoins. This is expected to streamline transactions and boost adoption of these tokens, especially for businesses. The law also includes stricter regulations for user protection. However, it might pose challenges for smaller companies and certain ongoing projects due to increased regulatory expectations. This move can have significant implications for the global cryptocurrency market and might set a precedent for other countries considering similar legislation.
- California DFP closed Silicon Valley Bank on March 10, 2018, with approximately $42 billion in withdrawals. Circle, the issuer of USDC, announced it had $3.3 billion out of its $40 billion in reserve.
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