Japan is increasing vigilance on crypto — to hire more employees and explore CBDC
Japanhas set up a brand new section within the Finance Services Agency(FSA) to oversee ‘decentralised finance’.
- In order to keep a closer eye on digital currencies, the Ministry of Financial is reportedly looking to increase its headcount.
- Japan has been reasonably open to crypto exchanges, but a series of scams, heists, and irregularities have nudged the government towards global policies under the helm of the G7 and the G20.
AdvertisementJapan’s financial regulator, the Financial Services Agency (FSA), has set up a new sector specifically to oversee digital currency regulation. And, the nodal Ministry of Finance is mulling over adding more staff to its ranks, according to a report by Reuters.
The island nation was the first country in the world to put a law in place that defined ‘crypto asset’ as a legal term. It was also the first to require companies to register as ‘crypto asset exchange service providers’ in order to operate a crypto exchange within the country.
But, it has since stagnated. The country has been reasonably open to crypto exchanges, but a series of scams, heists, and irregularities have nudged the government towards global policies.
Last month, the G7 — of which Japan is a participant — issued a notice covering central bank digital currencies (CBDCs) and global stablecoins last month. In October last year, the G20 — of which Japan is a member as well— filed a working paper outlining how stablecoins should be regulated.
Why is Japan ramping up its crypto regulation efforts?
Official sources told Reuters that the government’s primary objective is to mitigate the risk that crypto assets like stablecoins pose to the larger financial system.
The new unit within the FSA launched on July 8. It aims to oversee ‘decentralised finance’. It's called DeFi (decentralised finance) because users don't have to place their trust in financial institutions, which are often accused of being too opaque and complex for customers to scrutinise.
The FSA created a new position to head the section as well but there is no final word on the scope of the new section’s operations.
Meanwhile, the increase in headcount within the Finance Ministry is aimed at ramping up digital currency oversight.
The G7 prepares to buckle up.
In June, the G7 economies collectively called for more effective regulations of cryptocurrencies, especially stablecoins. The comments were included in a June 5 communique published after a G7 meeting of finance ministers and central bank officials in London. Central banks have intensified their criticism of cryptocurrencies as a battle over the monetary system escalates.
In its report, the Bank for International Settlements (BIS) said, "innovations such as cryptocurrencies, stablecoins and the walled garden ecosystems of big techs all tend to work against the public good element that underpins the payment system."
Stablecoins and digital assets more broadly have been in the G7's sights for several years. It feels that on a global scale, stablecoins could pose monetary policy and financial stability risks. Pegging a cryptocurrency directly to the US dollar or any other fiat currency means that it will inevitably have ties to the current banking system.
One famous example is Tether, which has raised concerns in the US government and ranks third in market capitalization behind well-known cryptocurrencies Bitcoin and Ethereum.
"It is clear that cryptocurrencies are speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks, and other financial crimes," the BIS said. Facebook's Project Libra, later called Diem, has spooked authorities to a great extent. Furthermore, money laundering has always been a universal concern.
Japan follows the global cue
The BIS report is much more overt in its support for CBDC development, especially international interoperability. "It’s about making sure that in this new digital world, the financial system will remain competitive and open," said Benoît Cœuré, Head of the BIS Innovation Hub. Most countries with significant economic power are currently brainstorming and experimenting with the idea of a central bank digital currency (CBDC).
The Bank of Japan is exploring ways of issuing digital yuan. The solution could practically replace the existing notes and coins without any relative stability. The country hopes to match its global counterparts in a collective effort.
For a more in-depth discussion, come on over to Business Insider Cryptosphere — a forum where users can deep dive into all things crypto, engage in interesting discussions and stay ahead of the curve.
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