Japan Restricts Algorithmic Stablecoins! What’s Next?
Japan restricts algorithmic stablecoins and this might be the last nail in crypto’s coffin
After passing landmark legislation on stablecoins, Japanese regulators are considering supplementing it by limiting stablecoin algorithmic backing. The intention was expressed by
the country’s Vice Minister for International Affairs, Tomoko Amaya, following a recommendation from the Financial Service Agency (FSA). As Japan restricts algorithmic stablecoins, the market is poised to see more losses.
Amaya laid out Japan’s regulatory framework for crypto assets during a roundtable hosted by the Official Monetary and Financial Institutions Forum (OMFIF), emphasizing financial stability, user protection, and anti-money laundering/counter-terrorism financing (AML/CFT). The speech was initially delivered in November, but the FSA published the full text on December 7. The 29-page presentation organizes Japan’s approach to cryptocurrency regulation, which is comprised of three major pieces of legislation: the Banking Act, the Payment Services Act, and the Financial Instruments and Exchange Act. One familiar with the Japanese regulatory environment would not find anything new at this point. However, the emphasis on distinguishing between “crypto assets” and “digital-money type stablecoins” provides a distinct perspective on the latter’s approach by local regulators.
Amaya’s speech also makes no mention of any specific dates or headlines for future legislation.
However, in the “Way Forward” section at the end of the document, the Vice Minister cites the FSA recommendations, which were reportedly made in October. This recommendation is likely to be considered by legislators in the future, as the current stablecoin regulation, passed by Parliament in June and will become law in June 2023, does not cover algorithmic stablecoins. The bill was introduced in the aftermath of a massive drop in cryptocurrency markets caused by the Terra tokens’ collapse, with the algorithmic stablecoin Terra USD (UST) losing its 1:1 value to the US dollar in early May.
Despite Japan’s doubts about issuing a central bank digital currency (CBDC), the Bank of Japan (BoJ) continues experimenting with a potential digital yen.
According to the local news agency Nikkei, the Japanese central bank has begun a collaboration with three megabanks and regional banks to conduct a CBDC issuance pilot. Starting in spring 2023, the pilot will provide demo experiments for the issuance of Japan’s national digital currency, the digital yen.
As part of the trial, the Bank of Japan is expected to collaborate with major private banks and other organizations to detect and resolve any problems with customer deposits and withdrawals from bank accounts. According to the report, the pilot will involve testing the offline functionality of Japan’s potential CBDC, with the goal of making payments without the use of the internet. According to the report, Japan’s central bank intends to continue its CBDC experiment for about two years before deciding whether to issue a digital currency in 2026. The announcement comes as countries ramp up CBDC research and development efforts, with China leading the global CBDC race.
