• G7 and G20 economies have called for greater regulation of ‘stablecoins’
• Bank of Japan experimenting with idea of a digital yen
Japan is beefing up its diplomatic efforts to regulate digital currencies globally, a sign of its government’s growing alarm that the new forms of private money could upend the financial system.
Regulators from the Group of Seven industrial powers and the Group of 20 big economies have already called for greater regulation of ‘stablecoins’ – a form of cryptocurrency typically pegged to a national currency.
And now Japan’s Financial Services Agency (FSA) has established a section to oversee digital currency regulation, while the Ministry of Finance is considering increasing staff, sources told Reuters.
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“Japan can no longer leave things unattended with global developments over digital currencies moving so rapidly,” one official said.
The move will complement efforts by the Bank of Japan, which is experimenting with ideas to issue a digital yen that it thinks could serve as a safer alternative to private settlement means.
Global regulators are worried about the growing presence of big-tech retail settlement platform operators that are not regulated by traditional banking rules. If they offer various settlement means using private digital currencies, that would erode the grip regulators have on financial regulation.
The Bank of England said last month that payments with ‘stablecoins’ should be regulated in the same way as payments handled by banks if they start to become widely used. US Federal Reserve chief Jerome Powell has also called for greater regulation, warning that cryptocurrencies pose risks to financial stability.
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The new unit at Japan’s FSA also aims to oversee ‘decentralised finance’ – a blockchain-based form of finance that does not rely on central financial intermediaries, officials said.
Stablecoins are cryptocurrencies designed to have a stable value relative to traditional currencies or to a commodity such as gold, to avoid the volatility that makes bitcoin and other digital tokens impractical for most commerce.
No stablecoins have gained traction in day-to-day commerce, but a proposal by Facebook in 2019 to create a digital currency for use on its platforms alarmed global financial regulators.
They fret that if private digital currency becomes too big, it could fragment a country’s financial system. Experts also say a lack of transparency is making cryptocurrencies a useful tool for money laundering and tax evasion.
- Reporting by Reuters
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