Japan has passed a law that allows banks and other financial institutions to issue stablecoins pegged to the official currency. Thus, the country became one of the first in the world to regulate the form of digital money. It has the largest economy among those who have taken such a step.

Permission to issue alternative currency applies only to banks and other registered institutions, such as trust companies and money transfer agents. Intermediaries or those responsible for currency exchange should take stricter measures against money laundering. The rules also define stablecoins as digital money and guarantee redemption of face value.

The Japanese Financial Services Agency (FSA) proposed this in March 2021. The consent of the parliament means that it will enter into force in 2023. The law will apply to Japanese financial institutions, as well as foreign transactions aimed at Japanese users.

On the day of the decision, the FSA published a paper examining the global use of stablcoins. The text also approves the circulation of digital currency in Japan under appropriate regulation. The document states that stablecoins are not regulated in the United States, but those who do so must comply with anti-money laundering and anti-terrorist financing laws. In the UK and Singapore, on the other hand, the rules on digital currency are quite strict.

The document also announces that as soon as they create a legal framework for stablecoin, Mitsubish UFJ Trust and Banking Corp will launch its stablecoin linked to the yen, called Progmat Coin.

Government regulation of stablecoins is probably considered a good practice, due to the fall of TerraUSD’s “stablecoin” and the shocks it has caused in the market. Self-made schemes have so far been unable to keep such currencies afloat.