The Liberal Democratic Party Leads Virtual Property System Reform
Japan Advances While Korea Lags Behind
“He who owns the payment power controls the flow of money.” This means it is crucial to establish a proper payment system and framework. If payments stop, the economy ultimately stops as well. At the core of today’s evolving payment systems lies ‘virtual assets.’
Many virtual asset and big tech companies, having recognized this trend, are rushing into the payment market, and governments around the world are also realizing the importance of new payment systems centered on virtual assets and paying close attention. This is because payment can become an issue of national security beyond just the economy. Recently, one country in particular has shown remarkable changes in this field: our neighbor, Japan.
There is a common perception that Japan prefers ‘analog’ and is somewhat behind in new technology industries. However, the rapid development of Japan’s virtual asset-related legislation recently has dispelled this notion. The implementation of a comprehensive plan based on the Web 3.0 white paper promoted by the Liberal Democratic Party, along with amendments to the Payment Services Act and Financial Instruments and Exchange Act to legislate exchanges, stablecoins, financial investment products, and DAOs (Decentralized Autonomous Organizations), is progressing at a very fast pace even compared to other advanced countries. In terms of legislation, Japan appears to be ahead of South Korea, which prides itself as a strong IT and new industry nation.
Particularly noteworthy is the regulation of ‘stablecoins’ under the amended Payment Services Act legislated in 2022 and enforced in 2023. According to the amendment, stablecoins regulated under the Payment Services Act include the ‘digital money-like stablecoins,’ which are defined as electronic payment means issued at a price linked to the value of fiat currency and promise redemption at the same amount as the issuance price. This clarifies that algorithmic stablecoins, such as Terra and Luna, which have caused ‘unforeseeable’ consumer damages, are classified as virtual assets and regulated under the Financial Instruments and Exchange Act. Furthermore, banks, money transfer businesses, and trust companies are allowed to issue these stablecoins, and companies conducting distribution are designated as ‘electronic payment means transaction businesses’ and are required to register. Comprehensive regulations on information, user protection, and anti-money laundering have been introduced, and foreign stablecoins are also included in the regulatory framework and institutionalized.
Since the implementation of the system, various experimental projects aimed at improving the problems of existing trading and payment systems using stablecoins have been ongoing in Japan, centered around companies such as Mitsubishi UFJ Financial Group, SBI Holdings, and GU Technology. Stablecoins based on blockchain technology generally have advantages over traditional financial payment networks, such as real-time payments, real-time synchronization of commerce and payment flows, and transparency of transactions based on traceability. Through this, attempts are being made to solve inconveniences in traditional fund transfers, trade settlements, foreign remittances, and securities transaction settlements. Public interest projects such as Hokuriku Bank’s blockchain-based local currency project in Suzu City, Ishikawa Prefecture, conducted from the perspective of regional revitalization, are also noteworthy.
What about South Korea? Before discussing the policies of financial authorities, who have traditionally held a negative stance toward the use of virtual assets as payment means, it is necessary to consider the characteristics of Korea’s payment market and system, which differ somewhat from Japan’s. Unlike Japan’s prepaid payment instruments focused on traditional commercial payment functions, Korea’s K-easy remittance and easy payment network is implemented based on prepaid instruments with free transfer and refund functions. Considering open banking, which complements the existing financial shared network, and card payment and settlement processes that are practically implemented close to real-time payment and settlement, Korea’s existing payment and settlement systems are certainly evaluated as more convenient and stable.
Moreover, as is generally known, Japan is relatively behind in the direction of a cashless society, which could be one of the reasons why Japan is swiftly institutionalizing stablecoins. In other words, Korea may have fewer problems to solve through stablecoins and might easily think that existing traditional centralized IT systems and technologies are sufficient to respond.
However, in actual trade transactions, foreign remittances, and other areas, points of contact where the advantages and usability of blockchain technology can be secured may be found. More concerning is that Japan’s advanced legislation and experiments could lead to solutions for problems in existing financial and trade payment networks, eventually becoming international standards. This poses a risk that Korea may fall behind in the formation, adoption, and development of institutional foundations.
South Korea is currently preparing the second phase of virtual asset legislation, and it is important not to overlook and to closely watch Japan’s institutional developments surrounding stablecoins.
Stablecoin A digital currency developed to solve the severe volatility problem of existing virtual assets, linked to stable assets such as the US dollar or gold to guarantee value stability.
DAO (Decentralized Autonomous Organization) An organizational form operated not under the direction of a central manager but based on autonomous decision-making by individuals. Blockchain technology is utilized.
Prepaid Payment Instrument A certificate issued by electronically storing monetary value. After charging an amount through electronic services, it can be used like cash.
Junhee Lee, Attorney at Tokyo TMI Comprehensive Law Office
※This article is based on content supplied by Law Times.
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