Japan plans to approve the issuance of yen stablecoin

On August 18, the Nikkei reported that Japan's Financial Services Agency will approve the issuance of the country's first yen-backed stablecoin as early as this fall, intended for use in areas such as international remittances. JPYC, a fintech company headquartered in Tokyo, will register as a money transfer operator this month. Data from the Financial Times on July 28 indicated that the value of stablecoins in circulation globally has grown to approximately $250 billion, most of which are pegged to US dollar assets. Stablecoins are based on blockchain technology. Dollar-pegged stablecoins must be backed at least 1:1 by reserve assets, which can include US dollars, demand deposits, and US Treasury bonds. Japanese legal revisions, effective June 2023, define stablecoins as "local currency-denominated assets," distinguishing them from other cryptocurrencies and allowing banks, trust companies, and money transmitters to issue them. The new Japanese yen stablecoin, to be called JPYC, will be pegged to 1 yen (approximately 0.05 RMB) and backed by highly liquid assets such as yen deposits and Japanese government bonds. Individual, corporate, and institutional investors can apply to purchase JPYC stablecoins and make payments, which will then be transferred to their e-wallets. Applications include remittances to overseas students, corporate payments, and blockchain-based asset management services. Nikkei reported that the project plans to issue 1 trillion yen (48.7 billion RMB) of JPYC stablecoins within three years. JPYC representative Okabe recently posted on social media platform X that yen stablecoins could have a significant impact on Japan's bond market. He noted that issuers of dollar-pegged stablecoins have become significant buyers of U.S. Treasuries, using them as collateral for their circulating tokens. For example, Tether (USDT) and USD Coin (USDC) are primarily backed by U.S. Treasuries. Okabe hinted that if JPYC becomes widely used, a similar trend could emerge in Japan, boosting demand for Japanese government bonds. "It's very likely that JPYC will begin purchasing large quantities of Japanese government bonds in the future," he said. The Bank for International Settlements warned on June 24 that decentralized stablecoins have a "poor performance" in becoming widely used currencies. In its annual economic report released that day, the Bank for International Settlements stated that such stablecoins have three major flaws: first, they are not backed by a central bank; second, they lack adequate safeguards against illegal use; and third, they lack the flexibility to generate funds for loans.