In a historic move, Japan's parliament passed a legal framework for stablecoins on Friday, providing a safety net for investors in the wake of last month's TerraUSD collapse that led to billions in losses, according to a Bloomberg report.
- Japan is one of the first major economies to pass a law specifically for stablecoins, although the law won't take effect for another year, the report added.
- The law provides clarity on the definition of stablecoins, which are now considered digital money and must be pegged to the yen or other legal tender, guaranteeing holders the right to redeem them at face value.
- Stablecoins can now only be issued by licensed banks, registered money transfer agents, and trust companies. The bill does not address existing asset-backed or algorithmic stablecoins. However, stablecoins are not listed on Japanese exchanges.
- The bill, prepared by the Financial Services Agency of Japan (FSA), was scheduled to be introduced in late 2021, passed by the Diet in mid-March of this year, and has now been approved by a majority of the full House of Representatives.
- In the wake of the TerraUSD (UST) collapse, this swift action by Japan could help against the crisis of confidence in cryptocurrencies.
- A stablecoin is a type of cryptocurrency whose value is tied to an external asset, such as the U.S. dollar or gold, to stabilize its price.