Japanese banks small and large are on track to start issuing stablecoins this year under legislation taking effect Thursday.
Stablecoins — cryptocurrencies pegged to legal tender, a commodity, or another underlying asset — are designed to buffer against major fluctuations in value. Examples include Tether and USD Coin.
The market capitalization of stablecoins totaled USD 129.5 billion as of Tuesday, according to CoinMarketCap.
Because stablecoins more or less maintain constant values, they can be used in real-world applications, such as wiring funds or making payments. Unlike e-money, such as stored-value cards, stablecoins are easier to exchange across platforms. The technology enables cross-border payments as well.
Japan passed a law in June 2022 governing stablecoins, becoming one of the first major economies to put in place a regulatory framework for them. That December, the Financial Services Agency lifted a ban on foreign-issued stablecoins.
With the revised payment services law now going into effect, banks, trust companies and funds transfer operators will be authorized to issue stablecoins. Operators circulating stablecoins will have to register with the government.
Businesses circulating offshore stablecoins in Japan will need to adhere to capital maintenance requirements. These measures will safeguard the interests of users.
Stablecoins are expected to streamline trade transactions. Normally, an exporting company would receive a bill of lading from a shipping company, and then send it to the buyer in exchange for a remitted payment. This process would take days.
With stablecoins, goods would be traded in exchange for funds received via blockchain ledgers, meaning that payments would be settled instantly.
Mitsubishi UFJ Trust and Banking is preparing to issue Progmat Coin. This stablecoin will be used for purchasing digital securities and nonfungible tokens.
With stablecoins, individuals and businesses can wire funds to each other without going through Japan’s interbank clearing network. A stablecoin platform is expected to charge less to wire money than a bank.
Since individuals can transfer up to JPY 100,000 (USD 715) to one another free of charge if their banks participate in the industry’s Cotra small-payment system, much of the demand for stablecoins is expected to come from businesses.
The market for corporate payment settlements amounts to roughly JPY 1 quadrillion (USD 7.1 trillion) a year. Issuing stablecoins backed by dollars and euros would likely draw demand from multinationals.
Digital lender Minna Bank plans to issue its own stablecoin, along with Tokyo Kiraboshi Financial Group and Shikoku Bank. All three banks will use a platform provided by Tokyo-based startup G.U. Technologies.
Stablecoins can also serve as digital community currencies for a particular geographic area. “Several regional banks are considering issuing” them, said Hidekazu Kondo, G.U.’s chief technology officer.
Central banks around the world are exploring issuing their own digital currencies, but advanced economies are not expected to reach that stage for another three to four years. Stablecoins will likely fill this void until then.