After the fall of Terra/Luna in May 2022, authorities began to scrutinize stablecoins more. As a result, many countries have come to the conclusion that restrictions should be placed on stablecoins backed by the US dollar, such as Rope (USDT) and the USD currency (USDC).

However, things are getting better now. Japan plans to lift its ban on domestic distribution of dollar-backed stablecoins issued abroad. The Financial Services Agency (FSA) made this decision after reviewing ordinances that were passed by the Cabinet Office. Read ahead to find out how the lifting of the ban on stablecoins will affect the crypto world.

Japan is on its way to lifting the Stablecoin ban

Japan’s Financial Services Agency (FSA) officially announced on December 26, 2022 that it will come up with a draft system and guidelines for trading stablecoins pegged to currencies such as the US dollar. Distributors will be authorized to manage the stablecoins being issued abroad as long as they hold sufficient assets.

When the amended Payment Services Act comes into effect in 2023, it will apply along with the Guidelines. The aim of the Guidelines is to ensure that distributors and cases create a secure transaction environment. The financial regulator stated that local distributors will oversee the distribution of stablecoins being issued abroad.

A transaction limit of 1 million yen and $7,500 per transaction will be applied to transfers made possible by these stablecoins, and adequate reserves will be guaranteed. Distributors will be required to provide the financial regulator with certain information as part of the anti-money laundering mechanism. This requires them to disclose the names of persons associated with the transactions.

As far as stablecoins issued in Japan are concerned, issuers will be required to hold collateral assets for them. The only issuers are banks, organizations providing money transfer services, and credit institutions. It is important to note that Japan has already passed legislation to create the regulatory framework for stablecoins in June 2022.

Implications of lifting the ban on stablecoins by Japan

There is no doubt that the financial regulator’s decision to lift the ban on stablecoins issued by foreign entities is a major step towards the development of the cryptocurrency market in Japan. With this decision, local crypto enthusiasts will now have access to a wide range of stablecoins, such as Tether and USDC. Since cryptocurrency traders now have access to a growing range of assets, competition in this sector is likely to increase soon. This increased competition may be beneficial to consumers in the long run because it will lead to lower fees.

This approach by the Japanese government in lifting the aforementioned restrictions on stablecoins is positive news that cryptocurrency enthusiasts need. It hints that governments are starting to regulate Digital currencies rather than a blanket ban on these digital assets. This balanced approach will lead to a healthy growth of the cryptocurrency industry in the long term because it will encourage other countries to come up with some guidelines or rules to regulate cryptocurrencies instead of directly restricting their use.

conclusion

This development is a reflection of the country’s welcoming attitude towards cryptocurrency regulation. Recently, the Tax Committee of the Liberal Democratic Party, the ruling party in Japan, approved a proposal to exempt crypto businesses from taxes on paper earnings issued. The country also plans to launch its own central bank digital currency.

The pilot study of issuing the digital yen is expected to start in the spring of 2023. Regulators are also entering into long-term cooperation agreements with cryptocurrency miners. Lifting the ban on stablecoins is expected to be just the first step by the Japanese government, and several reforms are expected to follow in the coming year.

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