As Canada moves toward stablecoin regulation, Scotiabank argued the move is unlikely to shake up the domestic market.
Economist Derek Holt said in a report last week that none of the frameworks is actually aimed at managing systemic risk, but rather improving payment speed, efficiency and 24/7 payments.
In November, the government promised to enact legislation to regulate stablecoins backed by the Canadian dollar. This follows in the footsteps of the United States, which has passed laws governing stablecoin issuers in recent months.
A stablecoin is a cryptocurrency whose value is tied to another asset, such as fiat currency or gold. They play an important role in the cryptocurrency market, providing payment infrastructure and are also used for international money transfers. Tether’s USDT is the largest stablecoin, followed by USDC issued by Circle Internet (CRCL).
Holt said these cryptocurrencies are surging in the United States, led by Tether’s roughly $185 billion footprint.
Stablecoin issuers hold their reserves primarily by holding Bitcoin in Treasury bills, repo funds, and money market funds. BTC$85,645.09 The report noted that this combination is attracting attention because a run could force assets to be liquidated.
While S&P recently downgraded Tether’s peg maintenance ability to the lowest level for the company’s size, Circle’s peg appears to be more stable as a result of its increased focus on Treasury. Without access to the Federal Reserve backstop, issuers would have limited protection in the event of a stress event, Holt said.
Still, the economist stressed that this was not a repeat of the historic peg failure. Stablecoins remain a small part of global finance, even though long-term projections envision multitrillion-dollar reserve pools that could eventually become important to the Treasury market. And while U.S. officials argue that stablecoins strengthen the dollar’s reach, he warned that fiscal slippage and issuer-level imbalances could make their support vulnerable.
In Canada, the bank sees real benefits in cross-border payments. Stablecoins have the potential to reduce costs, reduce liquidity premiums and offer 24-hour settlement if the issuer is strong, he said.
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