TL;DR Breakdown
- Japan recently ordered crypto exchanges to comply with sanctions against Russia.
- Japan plans to bring crypto exchanges under its financial regulatory scope through a modified Foreign Exchange and Foreign Trade Act.
- The proposed change will prevent sanctioned countries from using cryptocurrencies as alternatives.
According to Chief Cabinet Secretary, Hirokazu Matsuno, the Japanese government is moving to update its foreign exchange laws regarding cryptocurrency exchanges. The proposed amendment is part of the government’s efforts to implement sanctions against Russia. Under the leadership of the new Prime Minister, Fumio Kishida, the Japanese government has backed the new legislature and urged coordinated action among Western allies to implement it.
If the bill passes, the changes will bring digital asset exchanges under the regulatory scope of the country’s banking laws. The amendment is designed to prevent sanctioned countries from using digital assets to avoid sanctions.
Currently, there is no specific regulation of cryptocurrency platforms in Japan. The law governing these platforms is based on the Payment Services Act, which predates the popularity of digital assets. Under the new foreign exchange regulations, crypto platforms will be bound by the same standards as traditional banks. They will be required to check and identify transactions linked with prohibited Russian nationals or organizations.
The amendment is still in the early stages of development, and it remains to be seen whether it will be enacted. However, the government’s consideration of this line of action is a visible display of its commitment to preventing sanctioned countries from using digital assets to avoid detection.
Japan urges crypto platforms to comply with sanctions against Russia
Like most of its Western allies, Japan has implemented numerous financial sanctions against Russia as a consequence of its actions in Ukraine. In March, the financial regulatory body in the country issued a notice requiring cryptocurrency exchanges to ban transactions for blacklisted individuals. It made this move to prevent Russia from evading sanctions through cryptocurrencies.
However, a legislative amendment would make it a legal obligation for crypto platforms to block transactions for various illicit Russian officials, oligarchs, banks, and other organizations.
Banning Russia from using Japanese cryptocurrency platforms further alienates the former from the global financial system. As a result, the Russian Rouble is expected to continue falling, and Russian businesses will have a hard time trading with foreign countries.
Western sanctions force Russia to adopt cryptocurrencies
The concern that Russia is attempting to circumvent sanctions by utilizing cryptocurrency stems from the state’s growing involvement in the crypto industry, as well as recent remarks by government officials. Russia is one of the leading countries in mining Bitcoin and other cryptocurrencies. The average monthly hashrate of mining Bitcoin in Russia is around 11.23 percent.
The East European country has had to deal with consecutive devastating blows in recent news. The result is Russia getting forced to subsist on its own as other nations continue to pile on the sanctions. Although the Ukrainian conflict and invasion are still ongoing, the aggressor nation has sustained significant damage. However, in an effort to soften the impact of several sanctions on the nation, Deputy Energy Minister Evgeny Grabchak has urged the government to consider legalizing crypto mining across the country.
The Japanese government’s push to bring crypto exchanges under banking regulations is in response to these developments and is intended to help Russia avoid the impacts of the financial sanctions. The economic penalties imposed on Russia have necessitated the adoption of alternative payment systems and methods to participate in the global trade market. Experts have dismissed fears about the use of digital assets to skirt trade embargoes as entirely baseless.
