After the fall of Terra/Luna in May 2022, authorities started to scrutinize stablecoins even more. As a result, many countries came to the conclusion that restrictions must be placed on stablecoins that were backed by the U.S. dollar, like Tether (USDT) and USD Coin (USDC).
However, things are now looking up. Japan is planning to lift its ban on the domestic distribution of dollar-backed stablecoins that are issued overseas. Financial Services Agency (FSA) took this decision after reviewing the ordinances that are passed by the Cabinet Office. Read ahead to know how the lifting of the ban on stablecoins would affect the crypto world.
Japan on its Way to Lift its Stablecoin Ban
The Financial Services Agency (FSA) of Japan officially made an announcement on December 26, 2022, that it would come out with a draft system and guidelines for the circulation of stablecoins that are linked to currencies such as the U.S. dollar. Distributors will be authorized to manage stablecoins that are issued abroad as long as they keep sufficient assets.
When the revised Payment Services Act goes into effect in 2023, it will be applied in tandem with the guidelines. The aim of the guidelines would be to ensure that distributors and issues create a safe transaction environment. The financial regulator has stated that local distributors will oversee the distribution of stablecoins that are issued overseas.
A transaction limit of 1 million Yen $7,500 per transaction would be applied for remittances that are made possible by these stablecoins, and appropriate reserves would be ensured. The distributors would be required to provide the financial regulator with specific information as part of an anti-money laundering mechanism. This would require them to disclose the names of persons associated with the transactions.
As far as stablecoins issued in Japan are concerned, issuers would be asked to maintain collateral assets for them. The only issuers are banks, organizations that provide money transfer services, and trust organizations. It is important to mention that Japan has already passed the legislation for establishing the regulatory framework for stablecoins in June 2022.
Implications of Lifting of Ban on Stablecoins by Japan
There is no doubt that the decision of the financial regulator to lift the ban on stablecoins issued by foreign entities is a major step toward the development of the crypto market in Japan. Through this decision, local crypto enthusiasts would now have access to a wider range of stablecoins, such as Tether and USDC. As crypto traders would now have access to an increased range of assets, competition in this sector is likely to increase soon. This increased competition could be beneficial for consumers in the long run as it would lead to lower fees.
This approach of the Japanese government in lifting the above restriction on stablecoins is positive news that crypto enthusiasts need. It hints that governments have started regulating cryptocurrencies instead of putting a blanket ban on these digital assets. This balanced approach would lead to the healthy growth of the crypto industry in the long run as it would encourage other countries to come out with some guidelines or rules for regulating cryptocurrencies rather than directly restricting their usage.
This development is a reflection of the country’s welcoming attitude toward the regulation of cryptocurrencies. Recently, the tax committee of the Liberal Democratic Party, which is the ruling party of Japan, has approved the proposal for exempting the crypto business from taxes on paper gains issued tokens. The country is also planning to launch its own central bank digital currency.
The pilot study for the issuance of a digital yen is expected to commence in spring 2023. The regulators are also coming into long-term cooperation agreements with the crypto miners. It is expected that this lifting of the ban on stablecoins is just a first step by the Japanese government, and many more reforms are expected to follow in the coming year.
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