Japan must avoid stifling innovation in regulating stable coins, says govt panel member
* Stable coins must be backed by liquid assets – Okina
* Setting blanket, rigid rules on digital currency questionable
* BOJ must work with private sector in issuing digital currency
TOKYO, Sept 8 (Reuters) – Japan must ensure any regulation it adopts on stable coins and other digital currencies does not stifle private-sector techological innovation, Yuri Okina, a member of a government panel on digital finance, said on Wednesday.
Japan currently does not have a law regulating stable coins, though the Financial Services Agency (FSA) has recently set up a panel to study how best to ensure consumer protection and address concerns over money laundering.
Stable coins are a type of cryptocurrency whose value is linked to an asset like the U.S. dollar that does not change much in value.
In considering rules on stable coins, Japan must focus on enhancing their traceability, protecting holders from big losses and mitigating the risk of a “digital bank run” where huge shifts in fund flows disrupt the settlement system, Okina said.
But Okina, who is a member of the FSA panel, was cautious of setting blanket, rigid regulation on digital currencies.
“It’s important that stable coin is backed by secure, liquid assets. But it’s questionable whether setting blanket rules as strong as those currently applied to banks is the right approach,” Okina said.
“It’s important to avoid nipping the bud on private innovation,” she told Reuters in an interview.
The Bank of Japan must also work closely with private entities in developing its own digital currency, said Okina, a former BOJ official who is currently chairperson of private think tank Japan Research institute.
“There’s huge hurdles to clear in areas such as security and resilience. That’s where the BOJ can tap the private sector’s expertise,” she said.
The BOJ this year launched the first phase of experiments for issuing a central bank digital currency (CBDC), joining efforts by other central banks aiming to match the innovation achieved by the private sector. (Reporting by Leika Kihara and Yoshifumi Takemoto; Editing by Kim Coghill)