Japan Introduces Legal Framework for Stablecoins Linked to Yen

Key Insights:

• Japan becomes the first country to pass a stablecoins bill for investor protection.
• The bill defines stablecoins as digital money pegged to the yen and can only be issued by licensed banks.
• Mitsubishi UFJ Trust and Banking Corp will be releasing their own stablecoin – Progmat Coin.

After a massive crypto crash in the recent past, various governments and industry experts went vocal about streamlining the industry. In fact, the bear crypto market is welcomed by many as they believe it is a chance to get rid of bad actors and focus on better yielding products.

Stablecoins like Tether (USDT) and USD Coin (USDC) were the talk of the town, especially during the World Economic Forum in Davos this year. The debates were sparked by the collapse of the so-called algorithmic stablecoin – terraUSD or UST, which saw its sister token luna drop to $0 in May.

Though regulators, central bankers, and authorities are antagonists to cryptocurrencies, many have become constructive in regulating the sector for investor protection.

Japan is at the forefront of recognizing stablecoins

The ‘land of the rising sun’ has stepped forward to introduce a legal framework for stablecoins on Friday. The new bill would classify stablecoins as digital money.

Japan’s parliament confirmed that stablecoins could only be released by registered banks, trust companies, or money transfer agents. Unlike algorithmic stablecoins like UST that slumped recently, the bill noted that stablecoins must be linked to the national currency yen or any legal tender.

Additionally, the new law stated that the stablecoin must guarantee holders the right to redeem their cryptos at face value, a Bloomberg report said.

However, the bill does not address asset-backed stablecoins in use, such as tether or algorithmic stablecoins.

Japan has been cautious when it comes to cryptos or stablecoins. For instance, in December 2021, the country proposed new restrictions that only allow banks and wire transfer services to issue stablecoins.

The de facto watchdog, Japan’s Financial Services Agency, intended to tighten other rules like overseeing wallet providers that engage in stablecoin transactions.

The release noted that the new stablecoin legal framework would take effect in a year.

Mitsubishi and Banking Corp ready to roll out stablecoin

Japanese banking giant Mitsubishi UFJ and Banking Corp. are already ready to roll out its stablecoin. Dubbed Progmat Coin, the token is fully backed by yen and will guarantee redemption at face value. The Progmat Coin will be released once the legal framework is in place.

Announced in February, the company said in a statement that the stablecoin would be used for clearing and settlements of digital securities related to the bank.

Last September, Yuri Okina, a member of a government panel on digital finance, stressed that Japan must ensure any regulation it adopts on stablecoins does not stifle private-sector tech innovations.