The Japanese Financial Service Agency's recommendation's possible legal standing is unclear because laws do not currently cover algorithmic stablecoins.
The opposition to algorithmic backing
Japanese officials are thinking about completing their historic stablecoin law by limiting the algorithmic underpinning of stablecoins. The Financial Service Agency (FSA) has recommended this, and Tomoko Amaya, the nation's vice minister for international affairs, has reaffirmed it.
Amaya outlined Japan's regulatory framework during his speech on cryptocurrency assets at a roundtable organized by the Official Monetary and Financial Institutions Forum (OMFIF) (1), putting a focus on the elements of financial stability, user protection, and anti-money laundering/countering the financing of terrorism (AML/CFT). The speech was first delivered in November, but the FSA released the report on December 7. (2)
Japan's approach to crypto
The Banking Act, the Payment Services Act, and the Financial Instruments and Exchange Act, three important pieces of law, together make up the 29-page presentation that systematizes the Japanese approach to cryptocurrency regulation. (3) The emphasis on distinguishing between "crypto assets" and "digital-money type stablecoins" offers a novel viewpoint on the local regulators' attitude to the latter. However, one familiar with the Japanese regulatory landscape couldn't discover anything new. Additionally, Amaya's speech makes no mention of any specific deadlines or general themes for upcoming legislation. The Vice Minister, however, references the FSA suggestions given in the "Way Forward" section after the paper.
The suggested review enhances the guarantee of redemption rights and emphasizes that "global stablecoins shall not utilize algorithms in stabilizing their value."Given that algorithmic stablecoins are not covered by the existing stablecoins policy, which was approved by Parliament in June and will go into effect in June 2023, MPs will likely take this suggestion into account in the future. The cryptocurrency markets experienced a sharp decrease following the collapse of the Terra tokens, which led to the algorithmic stablecoin Terra USD (4) losing its 1:1 value to the US dollar in early May. This contributed to the passage of the law itself.