TOKYO — Japan is moving to limit the number of issuers of cryptocurrencies like Tether that are backed by reserve assets, such as the dollar or the yen, joining the U.S. in considering tougher restrictions on a growing segment of finance, Nikkei has learned.
So-called stablecoins are typically pegged to a fiat currency to prevent the kind of volatility associated with Bitcoin and other leading cryptocurrencies. The Financial Services Agency seeks to propose legislation in 2022 to restrict issuance of stablecoins to banks and wire transfer companies.
The debt crisis engulfing property developer China Evergrande has brought renewed attention to the claims of stability by these cryptocurrencies. Tether, the biggest stablecoin in circulation, is backed partly by commercial paper — a type of short-term corporate debt. Under scrutiny, the company said in September that it did not hold any commercial paper or other debt issued by Evergrande.
“To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions, which are subject to appropriate supervision and regulation, at the depository institution and the holding company level,” U.S. financial authorities including the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency wrote in a November report.
Japan’s FSA sees limiting stablecoin issuance to banks and wire transfer companies, which are legally required to protect customer assets, as a way to lower the risk for coin users.
The market capitalization of outstanding stablecoins issued by the largest stablecoin issuers came to more than $127 billion as of October 2021, according to a figure cited in the U.S. report.
The FSA will also toughen regulations meant to prevent money laundering. Intermediaries like wallet providers involved in stablecoin transactions and management will be brought under the agency’s oversight. They will also be required to meet obligations under Japan’s law on preventing transfers of criminal proceeds, including verifying user identities and reporting suspicious transactions.
Stablecoins hold potential benefits for both businesses and consumers, allowing them to transfer money and pay for purchases at ultralow transaction costs.
A new digital currency backed by bank deposits is on track for launch in Japan as early as 2022, an effort that will involve the nation’s top banks and about 70 other companies and organizations.
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