Today Japan’s largest bank, MUFG, announced a project to explore permissionless blockchain stablecoins for trade settlement with emerging markets, particularly for Japanese exports. The aim is to provide a similar level of certainty of payment as a letter of credit without the need for a bank guarantee (or credit).
The study also involves three other firms. Progmat is the MUFG-founded DLT platform for tokenization and stablecoins, which now has other investors. It has the Progmat Coin solution that supports multiple stablecoin issuers. Japan’s Standage specializes in export settlement. Ginco is a web3 wallet firm that already collaborates with Progmat and MUFG.
They mention that importers from emerging markets are currently having challenges with U.S. dollar usage for cross border payments. In particular, they note issues with foreign currency restrictions, sanctions and restrictions on using letters of credit. It’s unclear how a stablecoin would help with the foreign currency restrictions and sanctions.
However, a stablecoin can reduce the number of intermediaries compared to the correspondent banking system. It’s also possible to escrow or lock stablecoins, which means the exporter knows the importer has the cash committed for payment. From the importer’s perspective, the stablecoins are only released on receipt of the bill of lading when the goods arrive, reducing their risk. This is similar to the peace of mind enabled by letters of credit (without the trade finance element).
Hence, the proposal is to experiment with issuing one or more domestic stablecoins. It’s mentioned that the legal status of USDC and Tether are unclear in Japan. Hence, a dollar stablecoin might be issued in Japan, although the participants didn’t specify the currency and it could involve multiple currencies.
Stablecoin project roles
For the study, MUFG is the trust bank holding stablecoin reserve assets. Progmat Coin provides the stablecoin issuance platform, Standage the export trading solution, and Ginco the wallet. Ginco and Standage are working together on a specialized wallet, given the need for approvals to release funds. The Standage solution uses blockchain-based electronic bills of lading (eBL) to track the arrival of the cargo.
Meanwhile, Ginco, Progmat and MUFG are involved in another study to issue Japanese yen and dollar stablecoins to settle transactions between cryptocurrency exchanges. MUFG and Progmat are also collaborating for other stablecoins with Binance and the issuer of the existing stablecoin JPYC.