The move comes as the Bank of Japan wants to roll out a digital yen CBDC by the end of next year.
According to The Nihon Keizai Shimbun (Nikkei), one of the world’s largest financial newspapers and the entity behind the Nikkei 225 stock index, Japan’s Financial Services Agency, or FSA, will propose legislation next year restricting stablecoin issuance to only bank and wire transfer companies. Theoretically, this would prevent entities such as Tether (USDT), which does not operate as a bank and is only regulated in the British Virgin Islands, from conducting business with Japanese customers.
However, the new proposed rules would only affect some stablecoin issuers. For example, USD Coin (USDC) issuer Circle plans to become a crypto bank chartered in the United States amid a regulatory crackdown. While operating as private companies alone, stablecoin issuers are typically exempt from financial reporting, auditing or regulatory oversight, leading to notable speculative claims that Tether may not have enough reserves to back USDT.
In addition, the FSA also plans to toughen regulations in areas such as preventing transfers of criminal proceeds, verifying user identities and reporting suspicious transactions for both stablecoin issuers and wallet providers.
Private stablecoins, however innovative, compete directly with central bank digital currencies, or CBDCs, and their adoption. In Japan, the central bank plans to roll out the digital yen, dubbed the ‘DCJPY,’ by the end of next year. It is supported by a consortium of nearly 70 companies, including the country’s largest financial institutions, which have all joined in on a trial of the DCJPY. There is currently a stablecoin digital yen in circulation, called the ‘GYEN”, and another pending launch backed by Circle.