Crypto-assets cannot be called currencies, despite heavy trading

The Yomiuri ShimbunEven if innovative financial technologies are involved, in reality, they are tools for money games. They can no longer be called currencies.

Bills to revise two laws were passed into law in the Diet. One of them is the revised Payment Services Law, which refers to “virtual currencies” as “crypto-assets,” an internationally used designation.

The yen, dollar and other currencies have the backing of governments or central banks. Crypto-assets have no specific issuers or official guarantee of value and their prices violently fluctuate. It is also difficult to use them as a means of payment. It is an appropriate decision to distinguish between crypto-assets and currencies.

It is reasonable that the Basel Committee on Banking Supervision, which comprises financial authorities of major countries and regions, has said that crypto-assets are immature assets that “do not reliably provide the standard functions of money.”

The law revisions will oblige crypto-asset exchange service providers to manage the assets of their customers offline due to the danger of cyber-attacks. As with foreign exchange margin trading, which enables a large amount of trade with a small amount of capital, crypto-assets are treated as financial products under regulations.

In spite of crypto-assets being risky financial products, large volumes are traded. Considering the current situation, it can be said that it is natural to prepare for an environment in which crypto-assets can be traded in a fair manner. It is indispensable to deal with crypto-asset trading in terms of protecting investors.

Keep risks in mind

There has been a succession of major thefts from exchange service providers of assets deposited by customers. In Japan, a system to register exchange service providers was adopted ahead of other countries; however, careless management and lenient security systems of exchange service providers have been revealed. Thorough efforts should be made to prevent recurrences.

It is necessary for the Financial Services Agency to take such strict measures as deregistering exchange service providers if irregularities are found.

If financial institutions suffer losses due to investments in crypto-assets, it would rock the financial system. It is necessary to keep a watchful eye to ensure such a situation does not occur.

It is worrisome that crypto-assets are used for money laundering and illegal drug trading, and also have become a source of funds for terrorism.

The use of crypto-assets to fraudulently procure funds is taking place around the world.

How to regulate crypto-assets will be discussed at the meeting of the Group of 20 major economies’ finance ministers and central bank governors to be held in Fukuoka this weekend.

As long as crypto-assets are traded actively, it is important for each country to closely cooperate to close loopholes. It is hoped that Japan, as chair country, will lead the development of effective international rules.

In the latter half of last year, the price of a leading crypto-asset, bitcoin, fell to about 20 percent of its peak. However, the price has doubled in the last few months. It is important for investors to be fully aware of the risk of price fluctuations.

(From The Yomiuri Shimbun, June 6, 2019)Speech


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