Japan passes bill to limit stablecoin issuance to banks and trust companies

Japan is moving forward with legislation regarding the issuance of stablecoins, i.e., digital assets with their value pegged to fiat currencies or stabilized by an algorithm. 

On Friday, Japan’s parliament passed a bill to ban stablecoin issuance by non-banking institutions, local news agency Nikkei reported. 

The bill reportedly stipulates that the issuance of stablecoins is limited to licensed banks, registered money transfer agents and trust companies in Japan.

The new legislation also introduces a registration system for financial institutions to issue such digital assets and provides measures against money laundering.

According to the report, the bill aims to protect investors and the financial system from risks associated with the rapid adoption of stablecoins, which saw its market surging up to 20 trillion yen, or more than $150 billion.

The new legal framework will reportedly take effect in 2023, with Japan’s Financial Services Agency planning to introduce regulations for stablecoin issuers in the coming months.

Related: ​​UK government proposes additional safeguards against stablecoin failure risks

Japan’s stablecoin bill comes in the aftermath of a massive decline on cryptocurrency markets fueled by the Terra tokens collapse, with the algorithmic stablecoin Terra USD (UST) losing its 1:1 value to the U.S. dollar in early May.

The stablecoin market turmoil has not been exclusive to the Terra blockchain as other algorithmic stablecoins like DEI also subsequently lost its dollar peg, plummeting to as low as $0.4 in late May.