Japan has had some experience with digital currencies and Bitcoin in particular, and it hasn’t all been good. Japanese regulators presided over one of the worst meltdowns of a digital exchange since Bitcoin was introduced. Mt. Gox, a Bitcoin exchange, declared bankruptcy and its CEO was arrested after hackers stole 850,000 coins worth $500 million. The ongoing story shows that Mt Gox was likely insolvent for quite some time. Japanese financial regulators were involved because the company was based in Japan and thousands of the customers were Japanese.
After the long, drawn out investigation into this debacle, Japan’s Financial Services Agency considered introducing legislation that would declare digital currency as fulfilling the functions of a currency, and would therefore be subject to the same regulations as a fiat currency.
Exchanges that deal in the currency would be subject to regulation as well, and may be required to be regulated under know-your-customer (KYC) and anti-money laundering (AML) statutes. loplopframework that would allow Japanese customers engaging in digital currency to do so in a safer environment than that in which they are currently operating.
The proposals would have to be approved by the Diet, Japan’s legislature and were presented when the session opened in January. Any changes to the current climate would have to be approved before the Diet closes its session in June.
The legislation that was proposed defines digital currency as a conventional currency if it can be used to pay for the exchange of goods and services. It must be able to be traded and exchanged with an unknown partner. It is also considering the requirement that any startups and established exchanges apply for a specific license to operate. This tactic was deployed by New York’s Department of Financial Services when it required exchanges to receive a BitLicense before they could operate, or continue to operate. As a result, many bitcoin startups had to terminate their services for their New York clients because they either could not, or refused, to meet the licensing requirements.
Reuters recently reported that the Japanese vice finance minister, Jiro Aichi, called for the international community to develop standards for regulating digital crypt-currencies. He believes this would help to close loopholes that would arise from single countries establishing their own regulations. As it stands now, he noted, Japan’s legal position is that Bitcoin is not a currency, and the only valid currencies in Japan are coins and notes issued by the Bank of Japan.
With the banking sector gaining interest in digital crypto-currencies and the increasing popularity of the digital currency, Japan, in light of its recent unfavorable experience with Bitcoin would do well to act swiftly. Its ease of use and lower transaction fees means it isn’t going to go away anytime soon.