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Japan and Stablecoin regulations: What you should know about the new law

Japan and Stablecoin regulations: What you should know about the new law

The House of Councilors in Japan passed and enacted the Revised Payment Services Act last June 3, 2023. It’s a major step in the right direction in maintaining national security and promoting digital assets. This is a huge step in the country’s crypto space as Japan now prepares for bank-issued stablecoins in 2024.

The government’s suspicion that stablecoins are possibly used in money laundering is why stablecoin regulation was pushed in the country. It’s far more dangerous to be left unchecked, thus the new stablecoin regulation laws. This shapes the future of finance in Japan.

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What is the Revised Payment Services law?

The Revised Payment Services Act is only the first step of the Japanese government in regulating stablecoins. The law was officially effective last June 1, 2023, and many banks, both small and large, have already begun adopting it. This only affects stablecoins pegged to collaterals, so it paints a clear definition to differentiate it from other cryptocurrencies.

The regulatory framework used to make the Revised Payment Services Act stablecoin was passed in June 2022. It was followed by the Financial Services Agency’s lifting the ban on foreign-issued stablecoins like Tether (USDT). This means that local investors can now trade them, but stablecoin Japan cannot be issued until the revision in June 2023.

The act targets collateral-type stablecoins

The core limitation of stablecoin regulation Japan is how it identifies which assets are legal or not. One key component in this effort is simply clarifying the differences between collateral-backed and algorithm-backed assets. This is due to the Japanese government’s precaution to avoid cases like TerraUSD, which crashed in 2022.

TerraUSD was an algorithmic stablecoin used primarily in money lending and project investment. It was one of the largest stablecoins, standing side-by-side with the likes of BNB until it lost 99.9% of its value. What used to be pegged on the United States dollar (USD) is now worth just a fraction all because its algorithm failed to respond to a market crash properly.

Different kinds of collateral types of stablecoins

There are multiple kinds of collateral-type stablecoins, and how they are identified is straightforward. Here are three of the major examples identified thus far and what they mean for newcomers to how stablecoin intermediaries work:

  • Fiat currency-backed: The issuance of stable coins was done by a company with reserves of fiat currencies (usually a combination of more than one) to back the stablecoin. This allows intermediaries to convert your owned assets into any fiat used to back them at any given moment.

  • Virtual currency-backed: Works the same as fiat-backed ones, except cryptocurrencies are the reserves. Bitcoin (BTC) and Ethereum-based assets like Ether (ETH) are among the top choices for this type of stablecoin. Most of the time, this is minted only to allow users of one cryptocurrency to interact with a network that it otherwise can’t.

  • Precious metals-backed: This means that the stablecoin issued is backed by reserves of gold, silver, and/or platinum. Banks and trust companies aiming to issue their own stablecoins use these as reserves. It allows crypto to be used in bank transfer transactions but uses traditional banking methods to move assets.

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What this entails

The first change everyone should expect upon the effectiveness of these new regulation rules is seeing various financial institutions joining the trend. There will be plenty of electronic payment instrument stable coin being promoted as early as 2023.

Several companies that already show interest are mobile banking services like Minna no Bank, Tokyo Kiraboshi Financial Group, and Shikoku Bank. There is also Mitsubishi UFJ Trust and Banking Corporation, which is already preparing to issue Progmat Coin. All of them are dedicated to making payment easier and safer for users, and they can be adopted in various services in the country.

How is stablecoin being implemented?

The implementation of stablecoins, as clarified by the Revised Payment Services Act, revolves around commerce. It includes exchanging goods and services paid through blockchain ledgers for instant payment. Alternatively, it opens the possibility of regulated exchanges with foreign entities because it aligns with virtual currency overseas regulation.

This also makes crypto trading more secure and easier for Japanese users who use stablecoins for online payments. That includes making deposits at Sportsbet.io, the world’s leading crypto sports betting platform. There are plenty of payment solutions available for users worldwide, and USDT is among your best options.

Frequently asked questions

Here are the most common questions about the stablecoin regulation in Japan:

What stablecoins can I buy in Japan?

You can buy any stablecoin in Japan easily. That includes foreign-issued ones like Tether (USDT) and Binance Coin (BNB). You may also trade for locally issued ones, including Progmat Coin from Mitsubishi UFJ Trust and Banking Corporation. Options are bound to expand in the future so be on the lookout for new releases.

How should Japan deal with stablecoins?

The Japanese government deduced that stablecoins are potentially used in money laundering. However, its value is too high to outright ban its use. Instead, they decided to regulate stablecoin use within the country to better counteract money laundering while also benefiting from blockchain technology.

What is the relationship between stablecoins and the Revised Payment Services act?

The Revised Payment Services Act is an update to the existing Payment Services Act made in June 2022, which establishes the framework for stablecoin regulations. Revisions were made in 2023 to officially allow institutions to issue their own while the government monitors its uses.

What are the laws on stablecoins?

Laws on stablecoins revolve around identifying what kind of an asset it is compared to electronically transferred fiat payments and cryptocurrencies. These are used to build a proper framework for regulating stablecoins that aligns with overseas regulations.

Can banks issue stablecoins?

Yes. Many major banks in Japan have already begun issuing their own stablecoins. A few examples include the Minna no Bank, Tokyo Kiraboshi Financial Group, and Shikoku Bank. There is also the Mitsubishi UFJ, one of the top trust and banking companies in Japan.

Who are the issuers of stablecoins?

Stablecoins are issued primarily by state-licensed non-bank entities. This means they are not part of the country’s central banking system but provide payment solutions. Mobile banking and trust fund companies belong to this group and are allowed to issue stablecoins under the new Revised Payment Services Act 2023.

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Clarence Clarke24 Aug 2023

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