Japan beefs up diplomatic efforts on regulating digital currency: Report

 Tokyo is playing catch-up in a global debate among financial regulators about setting stricter rules on private digital currencies

By Leika Kihara and Takaya Yamaguchi

TOKYO (Reuters) - Japan is beefing up its diplomatic efforts to regulate digital currencies globally, three officials told Reuters, a sign of the government's growing alarm that a proliferation of new forms of private money could upend the financial system.

Tokyo is playing catch-up in a global debate among financial regulators about setting stricter rules on private digital currencies.

Regulators from the Group of Seven industrial powers and the Group of 20 big economies have called for greater regulation of "stable coins" - a form of a cryptocurrency typically pegged to a national currency.

To deepen dialogue with their counterparts, Japan's Financial Services Agency (FSA) last week established a section to oversee digital currency regulation, while the Ministry of Finance is considering increasing staff, the officials said on condition of anonymity due to the sensitivity of the matter.

"Japan can no longer leave things unattended with global developments over digital currencies moving so rapidly," one official said.

The move by government bureaucracies complements efforts by the Bank of Japan, which is experimenting with ideas to issue a digital yen that it thinks could serve as a safer alternative to private settlement means.

Global regulators worry about the growing presence of big-tech retail settlement platform operators that are not regulated by traditional banking rules. If they offer various settlement means using private digital currencies, that would erode the grip regulators have on financial regulation.

The Bank of England said last month that payments with stablecoins should be regulated in the same way as payments handled by banks if they start to become widely used. U.S. Federal Reserve chief Jerome Powell has also called for greater regulation, warning that cryptocurrencies pose risks to financial stability.