On Friday, Japan’s parliament passed a groundbreaking investor protection bill, defining stablecoins as digital currencies and establishing a legal framework for them.
According to reports, the law mandates that stablecoins, which are often backed by one or more reserve assets, be tied to the yen or another legal denomination. They must also guarantee the holder’s redemption at face value.
The announcement comes after the dramatic collapse of TerraUSD (UST), which has prompted US Treasury Secretary Janet Yellen to voice her alarm. According to Bloomberg, the legislation in Japan was neither prompted by algorithmic experimentation nor existing reserve-backed stablecoins from foreign issuers such as Tether.
Stablecoins can only be issued by established financial organisations in Japan, such as registered banks, money transfer agencies, and trust businesses, according to Japanese legislation.
It was believed that stablecoin issuance would be limited to licenced financial firms. B2C2’s Director of Strategy, Joerg Schmidt, told Blockworks late last year that this would be in line with worldwide trends, as the US has advocated limiting issuance to federally insured institutions.
Even before the market’s current downturn, Japan’s Financial Services Agency was working on a framework for stablecoins. Stablecoin issuers could expect detailed instructions in the coming months as the new legal framework takes effect in 2023.
Read more: Stablecoin issuer Tether holds reserves in the obscure Bahamas Bank: Report
