Today the Japanese parliament passed a revised Funds Settlement Law, which includes new provisions regulating stablecoins. However, the new legislation, which comes into force in a year, only appears to apply to permissioned networks and does not support algorithmic stablecoins.
Issuers of stablecoins will be restricted to banks, licensed money transfer companies that have asset custody capabilities, and trust companies. Intermediaries such as brokers must be registered as part of a new licensing system. In combination, this may make it harder for foreign organizations to participate.
Additionally, there will be enhanced anti-money laundering provisions and a new system to monitor transactions. Details will be clarified in the future by the Financial Services Agency (FSA).
Multiple Japanese institutional initiatives are planning to issue digital currencies. MUFG developed its Progmat network, which initially targeted security token issuance. In February, it announced plans for the Progmat Coin, aiming to provide a framework to support stablecoin issuance by multiple banks. Transfers using the stablecoin network will not be mirrored by interbank payments.
Previous Japanese enabling legislation has meant that Japan is one of the most advanced countries when it comes to security tokens, and having regulated settlement tokens was a missing piece of the puzzle.
Apart from Progmat Coin, there’s the Digital Currency Forum, in which MUFG is also a participant alongside other major banks such as SMBC, Mizuho, and many of Japan’s largest companies. It’s working on the Digital Currency JPY (DCJPY) platform and has numerous working groups exploring different use cases, including security token settlement, retail payments, industrial settlements, P2P electricity trading, regional coins and NFTs.