Japan to Propose Limiting Stablecoin Issuance

Japan’s Financial Services Agency (FSA) will propose legislation in 2022 to make it so only banks and wire transfer companies can issue stablecoins, a Tuesday (Dec. 7) Nikkei Asia report says.

The FSA says limiting the stablecoin issuance will help cut down on risks, as banks have to protect customer assets by law, and the agency also plans to make more strict regulations to combat money laundering. That will encompass adding oversight to wallet providers and others involved in stablecoins.

In addition, Japan is likely to debut a new bank digital currency backed by bank deposits sometime in 2022, according to Nikkei.

The report notes that property developer China Evergrande is facing a liquidity crunch that has cast doubt on stablecoins’ stability.

The stablecoin Tether is, in part, backed by commercial paper, which is a form of short-term corporate debt. That company has clarified that it doesn’t have commercial paper or other debt from Evergrande, but the report says the debt could pose a risk to holders of the coin.

Stablecoin regulation has been a hot topic, with differing opinions in various countries all over the world. At a Senate hearing in the U.S., Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell sparred over the topic.

Powell questioned Yellen’s position that only federally insured banks should be allowed to issue stablecoins, calling the stance “perplexing.”

See also: Powell, Yellen Clash Over Stablecoin Regulation at Senate Hearing

Yellen chaired a Working Group report calling for legislation to make it so that stablecoins “are subject to appropriate federal prudential oversight on a consistent and comprehensive basis.” This would include legislation that requires stablecoin issuers to be “insured depository institutions.”

Yellen’s position is that there are big risks to dealing with stablecoins, including to the payment system and risks of the concentration of economic power. She feels that stablecoins needed to be regulated the same way that providers of similar services are, like banks.

While more regulation could pose challenges to stablecoin issuers, some wouldn’t be bothered. Jeremy Allaire, CEO of stablecoin issuer Circle, said his company wants to be a national bank anyway.