As Canada turns to stablecoin regulation, Scotiabank argued the move is unlikely to shake up domestic markets.
Any framework is really about improving payments speed, efficiency and 24/7 settlement, rather than managing systemic risk, economist Derek Holt wrote in last week’s report.
In November, the government committed to legislation that will regulate stablecoins backed by the Canadian dollar. It follows in the footsteps of the United States, which passed a law to regulate stablecoin issuers in recent months.
Stablecoins are cryptocurrencies whose value is pegged to another asset, such as fiat currency or gold. They play an important role in the cryptocurrency markets as they provide payment infrastructure and are also used to transfer money internationally. Tether’s USDT is the largest stablecoin, followed by USDC, issued by Circle Internet (CRCL).
These cryptocurrencies have surged in the United States, led by Tether’s roughly $185 billion footprint, Holt said.
Stablecoin issuers deposit reserves primarily in short-term Treasuries, repos, and money market funds, with bitcoin and gold advances little by little. That combination has drawn attention because a run could force asset liquidations, the report notes.
S&P recently lowered its assessment of Tether’s ability to maintain its peg to the lowest level of its scale, while Circle’s peg appears more stable as a result of its tighter focus on Treasury. Without access to the Federal Reserve’s backup mechanisms, issuers would have limited defenses in the event of stress, Holt wrote.
Even so, the economist emphasized that this is not a repetition of historical failures in the link. Stablecoins remain a small portion of global finance, even if long-term projections imagine trillions of dollars in reserves that could eventually prove important to the Treasury market. And while U.S. officials say stablecoins bolster the dollar’s reach, they warned that fiscal slippage or issuer-level imbalances could make that support fragile.
For Canada, the bank sees the real reward in cross-border payments. Stablecoins could reduce costs, reduce liquidity premiums and offer 24-hour settlements, as long as issuers remain strong, he said.
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