Japan seeks to limit stablecoin issuance via new laws

In the aftermath of the fall of Terra, the Japanese government is rushing to implement the new stable currency regulations.

Japan is moving toward new legislation for various issues associated with stablecoins, which means digital assets can be linked to fiat currencies or a stabilized currency after using an algorithm to maintain their price.

The Japanese parliament passed a bill banning non-banking companies from issuing stable currency, as reported by a local news agency on Friday.

The bill further provided clarity around the definition of stablecoins, which will now be considered digital money and must be linked to the yen or another legal tender, thus guaranteeing holders the right to redeem them at face value.

The bill defines that the issuance of stablecoins should be restricted to only licensed banks, registered money transfer agents, and trust companies in Japan.

The new law provides for the registration of financial institutions to provide such digital assets and to curb money laundering.

With its market share rising to 20 trillion yen, or $150 billion. As per reports, the bill aims to protect investors and the economy from the risks associated with the rapid adoption of stable currencies,

The Japan Financial Services Agency is further planning to introduce restrictions on issuers of stablecoin currency in the coming months. as the new legal framework is reportedly set to take effect in 2023.

Japan’s stable coin-based bill comes after a sharp fall in cryptocurrency markets, while this also accelerated the fall of terra tokens after the algorithmic stable coin Terra USD (UST) lost a 1: 1 ratio against the US dollar in early May.

Other algorithms, such as DEI stable currencies, later also lost the dollar peg value and fell to $0.4 by the end of May, so this disruption in the stablecoin market was not limited to just the terra blockchain.

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